The Daily Shot And Data - June 1, 2016

By Walter Kurtz

Wednesday, June 1, 2016 10:24 AM EDT

Greetings,

Once again we begin with the Eurozone where economic reports remain mixed.

1. The German unemployment rate hit another record low.

2. Ireland's unemployment is now below the level of autumn 2008.

3. Jobless numbers in France seem to have peaked. By the way, over time, French unemployment could decline substantially if Hollande manages to push through the labor reforms.

Source: Natixis, @joshdigga

4. On the other hand, Italian unemployment rate ticks up unexpectedly.

5. Across the Eurozone, the unemployment rate is now near five-year lows. Note that the numbers in the graph below don't always correspond to those above (for example for Germany). National unemployment figures often differ from "harmonized" measures used for comparison purposes.

Source: ‏@fastFT

6. Euro area loan growth to households slowed while corporate lending growth is still gradually improving. A significant slowdown in private credit growth - which remains near historical lows - could derail the fragile recovery.

Source: ECB

7. Growth in the euro-area broad money supply has already stalled (coming in below consensus).

Source: ECB

8. As discussed yesterday, the Eurozone is still officially in deflation but prices should begin growing again on a year-over-year basis as a result of higher oil prices.

Source: @fastFT

9. Italian 2yr yield moves deeper into negative territory. Amazing.

10. Greek shares are up almost 50% from the lows in February in response to the successful bailout process.

Separately, European credit has been outperforming equities. Are European shares cheap or are credit spreads too tight in response to the ECB's planned corporate bond purchases?

Source: BofAML

Now on to the UK where retail deflation persists. The British Retail Consortium Shop Price Index (price changes in UK retail outlets) is shown below on a year-over-year basis.

Brexit risk is back on the table as the latest Guardian poll seems to show a lead for "leave".

Source: The Guardian

Here is the FT's Brexit poll-average chart.

Source: @FT

The British pound took a beating in response to the new Brexit poll.

Source: @barchart

Nonetheless, the betting markets still heavily favor "stay".

Source: @PredictWise

Anecdotally, businesses in Ireland, many of whom rely on trade with the UK, are extremely concerned about the referendum.

Overall, European sentiment has improved despite political uncertainty in the UK and Austria.

Source: @WSJmarkets, @JmBadalamenti

1. Turning to Japan, the nation's labor shortages persist.

Source: Goldman Sachs

2. Some suggest that the BOJ’s ETF purchase program could be expanded, potentially giving a boost to the Nikkei.

Source: Deutsche Bank, ‏@joshdigga

3. Speaking of Japanese equities, it seems that domestic institutions have been supporting the equity markets as foreigners exit.

Source: Deutsche Bank, ‏@joshdigga

The Australian dollar jumped on better-than-expected GDP report. The nation's economy remains resilient.

Separately, Australian businesses are taking on more debt, with corporate credit growth overtaking mortgage debt.

Source: @business

1. Now let's visit China, where according to the latest Caixin/Markit report, manufacturing remains relatively weak.

Source: @MarkitEconomics

2. Similarly the FTCR China Business Activity Index is soft for this time of the year.

Source: @FT

3. The renminbi continues to weaken.

4. Related to the above, capital outflows from China remain a concern given an increased potential for further renminbi depreciation.

Source: Goldman Sachs

5. China's private sector is now extremely vulnerable to higher rates with debt service ratio already elevated.

Source: Deutsche Bank, @joshdigga

6. China stocks rallied on hopes of being included in the MSCI indices - and therefore in the MSCI Emerging Market ETF (and other products).

7. The 英文/DaLian Commodity Exchange soy meal futures price is shown below. The volume in the chart is for all the contracts - notice the increase.

Source: @barchart

China's demand for imported soy and soy products continues to rise.

Source: Hellenic Shipping News Worldwide

Hong Kong experienced a large property price decline (16.3% vs. the 2015 peak). It's about time.

Source: Citi, ‏@joshdigga

1. Switching to Brazil, the nation's unemployment rate rises above 11% for the first time in years.

Brazil's employment and wage growth rates have been firmly in the red.

Source: Goldman Sachs

2. Deterioration of fiscal balances in Brazil continues.

Source: Goldman Sachs

3. Given the extraordinary weak economic conditions, Goldman Sachs sees a whole rate cut cycle ahead in Brazil.

Source: Goldman Sachs

4. Even with the new government in place, the scandal (referred to as "Carwash") continues to thin out Temer's cabinet.

Source: Chicago Tribune

1. Continuing with other emerging markets, Argentina's latest industrial production decline has been worst since the 2001 default.

2. According to Bloomberg, "Nigeria records its first trade deficit in at least seven years" as the oil export dependence takes its toll.

Source: @business

Furthermore, Nigeria's FX reserves are at the lowest level in over a decade. A devaluation is coming.

3. India's infrastructure output spikes, while the GDP growth beats forecasts. India is now the fastest growing large economy.

4. Saudi Arabia is out with a $15bn bond sale as it tries to plug some fiscal holes. Investment bank selection is on.

Source: @FT

5. Russia decides to create its own cryptocurrency and outlaw all others, including bitcoin. A government controlled cryptocurrency? Doesn't that defeat the purpose?

Source: Brave New Coin

1. Back in the United States, the Texas manufacturing sector is still in contraction mode - coming in worse than forecast. Anecdotally, according to people on the ground, the situation has really deteriorated.

Source: @SoberLook

According to the Dallas Fed, the state's manufacturers are anticipating cutting back workers' hours going forward.

2. On a more positive note, the media reported that US consumer spending rose at the fastest rate in almost 7 years.

Before celebrating, however, the stronger US consumer spending is at least in part driven by increased gasoline purchases and higher fuel prices.

To be sure, US "core" consumer spending growth is still decent but certainly not the "fastest in 7 years".

3. US home price appreciation beats forecasts. However, price increases are still about double the wage growth. Some suggest that the affordability is still quite high due to low mortgage rates. That's fine, but the longer this situation persists, the more the housing market becomes vulnerable to interest rates.

In credit markets, Morgan Stanley points out that higher corporate debt in the US is less of a problem than some make it out to be. Outside of energy, the only industry that looks overleveraged relative to the historical levels is healthcare. Recent M&A activity in the sector resulted in this increase.

Source: Morgan Stanley

Here is US debt issuance by market cap (over time) and by sector.

Source: Morgan Stanley

In US equity markets, dividends are now rewarded while buybacks are penalized.

Source: Ycharts.com

Here is the percent of S&P500 shares with dividends greater than the 10yr treasury yield. Equities are now quite vulnerable to higher longer-dated rates.

Source: BofAML

1. In commodities markets we've seen an impressive decline in iron ore in May as Beijing tries to control "excessive speculation".

Source: @barchart

2. US natural gas perked up after the Memorial Day holiday in response to higher temperatures forcing many to turn on air conditioners (higher demand for electricity). But the primary explanation for an almost 6% jump on Tuesday was technical in nature. Natural gas crossed the 200-day moving average for the first time since Nov 2014.

Source: @barchart

Source: @WSJ

Finally, here is the performance of the key liquid asset classes in 2016.

Source: ‏@FTMarkets

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

1. Vegas home price index. Some suggest that prices could move even lower if gaming laws (especially in California) change.

2. Banking regulation in terms of page count. Is the financial system "safer"? Speaking to people working at banks, one hears of red tape, uncertainty, confusion, and inconsistent rule application.