The Daily Shot And Data - June 15, 2016

By Walter Kurtz

Wednesday, June 15, 2016 9:18 AM EDT

Greetings,

1. We begin with the Eurozone where the 10-yr Bund yield closed in negative territory for the first time.

2. European bank shares dropped another 2.5% in a relentless selloff. Brexit risks, undercapitalization, bad loans, negative rates, regulatory pressures, weak global growth - all weigh on the sector.

Deutsche Bank is under pressure again as the CDS spreads widen.

Source: Google

Source: @Convertbond

Italian banks seem especially vulnerable as share prices fall to the lowest level since 2012.

3. Periphery bond yields are higher. Spanish, Italian bond yields rose despite all the ECB buying activity amid European financial sector jitters.

Greek bond yields are back up to 8%.

Source: @fastFT

Even Ireland's sovereign CDS spread rose in response to Brexit risks.

Source: ‏@markets, @LorcanRK

4. Spain and Italy remain firmly in deflation, presenting a persistent challenge for the ECB.

5.On a positive note, the Eurozone industrial output rebounded, beating consensus.

Source: Goldman Sachs

6. Is the Italian housing market stabilizing (albeit at depressed levels)?

Source: Goldman Sachs

The UK's EU referendum remains front and center in global financial markets.

1. Brexit undecided voters seem to be leaning toward "out".

Source: @FT

2. While the Brexit probability in the betting markets has risen sharply, it remains around 40% for now. A larger portion of participants in these markets is convinced that when push comes to shove, the UK voters will choose "Stay".

Source: ‏@markets

3. The British pound implied volatility index continues to move higher.

4. Now the Euro volatility index has spiked as jitters spread to other markets.

5. The G7 FX volatility average moved sharply higher.

Source: @LananhTNguyen, @business, @MsAndreaWong

6. The Merrill Lynch market stress index jumps.

Source: ‏@markets, @cecileva

7. Brexit risk is spilling over to other countries as the Polish zloty falls for the fourth day. According to Bloomberg, "Polish economy is the largest recipient of EU subsidies and Britain is the third biggest net contributor to the bloc’s budget". Some are suggesting that 5 zlotych to the euro is quite possible in a Brexit scenario.

The chart shows the number of zlotych one euro buys.

Separately, Poland's CPI is in the red.

1. Turning to China, the renminbi declined to the lowest level since 2011 vs. the dollar (the dollar now buys over RMB 6.6 ).

Source: @barchart

2. The long-awaited decision by MSCI on including China's shares in the global indices ended up being a disappointment for China. Beijing still doesn't understand how to run a "free floating" marketplace in anything - from currencies to rates, equities, and commodities. That makes international investors uneasy.

Source: NY Times

3. Bloomberg followed up on yesterday's comment in the Daily Shot regarding China's speculative frenzy in soy meal futures. Just take a look at the volumes - enough to "feed half the world’s pigs".

Source: @business

1. In other emerging markets, India's wholesale price changes turned positive on higher food prices.

2. Brazil's retail sales remain a disaster.

Source: Goldman Sachs

3. Nigeria's inflation hits a six-year high.

Nigeria seems to be getting ready to devalue its currency (the naira) - potentially as soon as this week. The central bank may be forced to raise rates sharply, given such devaluation will exacerbate rising inflation (above).

Source: @PaulWallace123

Switching to Japan, dollar-yen is below 106 again. In a Brexit scenario, the yen will see a dramatic increase, potentially forcing Tokyo to intervene.

Source: @barchart

The 10yr JGB yield hits another record low - deeper in negative territory.

New Zealand's 10yr government bond yield also hits record low as fixed income investors search for yield.

Source: Investing.com

Speaking of record low yields, here is a chart showing the percentage of negative yielding bonds by country.

Source: ‏@bySamRo, DoubleLine

This chart shows the divergence of "shadow" overnight interest rate for the US, the UK, and the Eurozone. Note that in the US this rate becomes equal to the actual fed funds rate once above zero.

Source: Macquarie

Back in North America, Canada's residential investment as a percentage of the GDP hits a record high. This trend has helped keep the country's economy humming in the face of weak natural resource prices, often beating economists' forecasts. Is it sustainable?

Source: Macquarie

1. In the United States, the Atlanta Fed wage growth tracker hit 3.5% for the first time since 2009.

Source: @AtlantaFed

2. Small business margins are under pressure from higher wages (above) and the inability to raise prices. Note that in the 90s the situation was entirely different, with better sales volumes and higher margins.

Source: @NFIB

3. Rent inflation is above 2% in almost all US cities.

Source: Goldman Sachs

4. US retail sales were boosted by higher gasoline prices.

But even without the help of higher gas stations sales, retail sales were up 3.6% YoY - a relatively robust result. Thus far, the softer labor market isn't having much of an impact on spending.

5. The "non-store" retail trade is now more than 10% of total retail sales (this is mostly internet sales but also includes paper catalogs).

6. Are US import prices bottoming out? Here are the total imports on a month-over-month basis and the absolute level of imports ex-fuel.

7. US business inventories were up 0.1% (vs. 0.2% expected) .

Separately, some economists are concerned that the inventory overhang will create an additional drag on US GDP growth.

Source: Deutsche Bank, @joshdigga

8. The AtlantaFed GDP tracker (GDPNow) is now at 2.8% for Q2.

Source: @AtlantaFed

9. The US 5yr real rate is moving lower. This trend to some extent represents an easing in monetary conditions (without the Fed doing anything).

10. The last chart on the US economy shows the market-implied probability of two hikes this year.

Source: ‏@boes_

1. Switching to the energy markets, here is the year-over-year GDP growth for Texas, Oklahoma, and North Dakota. Low oil prices have taken their toll.