The Daily Shot And Data - June 30, 2016

By Walter Kurtz

Thursday, June 30, 2016 4:47 PM EDT

Greetings,

Today, let's begin with commodities.

1. A major factor in recent appreciation in several commodities has been the strength of the Brazilian real. The currency is up over 23% this year vs. the US dollar.

2. Brazilian real and tighter markets in Asia sent coffee prices higher.

Source: @barchart

Source

3. Sugar prices soared to the highest level in three-and-a-half years. According to Nasdaq, Wednesday's jump in prices was driven by "speculation that a trading house was set to take another big physical delivery of the commodity." A much stronger Brazilian real helped as well.

Source: @barchart

4. Orange juice futures rose sharply.

Source: @barchart

5. US milk futures spiked as well. Based on the above, we can see our breakfast getting more expensive in real time.

Source: @barchart

6. On the other hand, US grains got hammered over the past few days. Here is corn and wheat.

Source: @barchart

7. Investors have been moving into silver. As a precious metal, it provides some protection against "tail risk" (with rising demand for coins for example) while also being an extremely useful industrial commodity. Supplies are expected to be tight in the next few years.

Source: @barchart

Source: Money Morning

8. In China's commodity markets, some of the frenzied activity we've seen this year has returned despite Beijing trying to curtail it. Here are the soy meal futures on the DaLian Commodity Exchange.

Source: @barchart

Below we see cotton futures on the Zhengzhou Commodity Exchange.

Source: @barchart

And finally, here is thermal coal - also on the Zhengzhou Commodity Exchange.

Source: @barchart

Continuing with commodities, let's take a look at the energy markets.

1. US crude oil inventory declined more than expected.

2. US crude oil production is down 10% from the peak (reached a year ago).

Source: EIA

3. Brent crude is back above $50/bbl in heavy trading.

Source: @barchart

4. US gasoline stockpiles build was greater than expected, as refiners boosted output.

5. Here is what hedge funds' net exposure to select energy sectors looks like over time.

Source: Morgan Stanley, @joshdigga

Now let's go over a few updates on the US economy.

1. US consumer spending looks quite robust.

Source: @jbjakobsen

2. The latest consumer spending report (above) sent the Atlanta Fed GDP tracker to 2.7% growth forecast for Q2.

Source: @AtlantaFed

3. Analysts are also forecasting (relatively) strong results for the next few quarters as the US consumer is once again the engine of economic growth in the US.

Source: ‏@GregDaco

4. Below are a couple of charts on the US housing market. The first shows existing home sales as a share of the overall housing stock ("inventory turnover").

Source: Citi, @joshdigga

The second shows a spike in "pre-sold" new homes.

Source: Citi, @joshdigga

5. The Fed's stress test results for banks are in and some shareholder-friendly activity has been approved - dividends and buybacks. This announcement sent bank shares up sharply after hours.

Source: ‏@fastFT

Source: ‏Google

In fact, with the S&P500 rising sharply for the second day (the biggest 2-day jump since February), the banking shares pushed the index even higher after hours.

Source: ‏@barchart

1. Now on to the UK where housing prices have been steadily rising. Let's see what happens now.

2. Analysts expect a bit of "stagflation" in the UK after Brexit. The devalued currency pushes up prices while the contraction in investment and hiring slows the economy.

Source: @fastFT

3. The next chart shows the FTSE 100 vs. the FTSE 250 indices. Domestically focused UK firms (FTSE 250) got hit much harder by Brexit, while the FTSE 100 has fully recovered (in GBP terms).

Source: Ycharts.com

4. According to the FT, the first BoE rate hike is not expected for another five years, more than a year after the ECB.

Source: ‏@SukiDil

5. The EU is telling Britain that there will be no access to the EU market without the UK accepting "freedom of movement" for EU residents.

Source: BT

Elsewhere in Europe, Sweden's household credit expansion accelerates. This trend is expected to ease as the laws requiring mortgage amortization kick in. Riksbank has been concerned for some time about growing consumer indebtedness and forcing loan amortization is apparently one way to address it.

1. In the Eurozone, German consumer confidence improves more than expected. The GfK indicator has serious drawbacks but it's a helpful data point nevertheless.

2. Is German inflation stabilizing?

3. The Germany/France economic sentiment is diverging again.

Source: @CapEconEurope

4. Here is Spain's 2 years of deflation.

5. European banks' underperformance widened again on Wednesday. Note that while, on average, European banks were up, they are falling further behind the STOXX 600 index.

6. The ECB’s Constancio warned of another round of bank deleveraging. A couple days back we discussed loan growth in the Eurozone - which could easily be reversed by banks reducing balance sheets.

Source: @fastFT

7. It doesn't look as though the Eurozone leadership will let Italy bail out its banking sector.

Source: Reuters

8. Two foreign banks failed the Fed's stress tests: Deutsche Bank and Santander. Deutsche was already under pressure when the market learned that Soros shorted DB prior to the EU Referendum. Santander took a hit after hours.

Source: Google

9. Ireland says it's "open for business".

Source: WSJ

10. Irish 10yr government bond yield hit a record low.

11. Here is an interesting observation. Eurozone inflation expectations rise in response to a weaker dollar - not a weaker euro. Hopefully, the ECB is paying attention.

Source: ‏@auaurelija

Japan's industrial output is falling (more than economists had projected) while inventories are rising. The recent yen strength could make the situation even worse.