The Daily Shot And Data - June 8, 2016

By Walter Kurtz

Wednesday, June 8, 2016 10:04 AM EDT

Greetings,

Once again, let's begin with several developments in the Eurozone.

1. The Eurozone GDP was revised up amid improved household spending. Will this be the year the euro area's economy grows faster than the US?

Here is the GDP growth breakdown by country.

Source: @fastFT

2. German 5yr government bond yield moves deeper into negative territory, and the 10yr yield hit a record low (is it headed into the red as well?).

Source: @fastFT

3. German industrial production beat forecasts amid a jump in investments.

Source: Statistisches Bundesamt

Elsewhere in Europe, the Swiss 30yr government bond yield dropped to a new low of 12bp. Is it going negative as well?

Source: Investing.com

1. Turning to the UK, the nation's Economic Policy Uncertainty Index (3-month moving average shown) spikes on Brexit fears.

Source: policyuncertainty.com

2. Is Brexit risk driving outflows from European funds held by US investors?

Source: Goldman Sachs

3. Some polls seem to show the EU Referendum "Leave" campaign ahead.

Source: Reuters

4. Here is the Economist's Brexit poll average.

Source: ‏@EconBizFin

5. The British pound implied volatility index rises further on Brexit concerns.

Separately, the Halifax housing report expects UK house price appreciation to continue cooling. At current 9% YoY, home price appreciation has to slow.

1. Turning to emerging markets, the Indian rupee rose for a fourth day as the RBI left the benchmark rate unchanged.

Source: @barchart

Separately, India's oil demand has been on the rise, suggesting robust growth.

Source: Bernstein

2. The Philippine stock market has outperformed sharply after the elections there.

Source: Ycharts.com

3. Israel's FX reserves hit another record.

4. South Africa's business confidence dropped to an all-time low.

5. China FX reserves fell to the lowest level since 2011 amid continuing capital outflows.

Per Deutsche Bank's comments (discussed yesterday), China’s recent credit boom took place in medium to long term debt, typically associated with infrastructure spending. This is the area of focus for Beijing.

Source: ‏Goldman Sachs, @joshdigga ·

6. The chart below shows emerging markets debt vs. equity performance YTD.

Source: Ycharts.com

The Reserve Bank of Australia left rates on hold in response to a relatively strong Q1 GDP. The Aussie dollar moved higher again.

Source: @barchart

Japan's total labor input in the private sector (see the definition below) spiked.

Source: ‏Deutsche Bank, ‏@joshdigga

Part-time employment in Japan has been on the rise (with women representing a significant proportion of the new entrants).

Source: ‏Deutsche Bank, ‏@joshdigga

1. Now back to the United States, where productivity growth remains tepid.

Source: Nordea, ‏@JmBadalamenti

2. US unit labor costs rose more than expected. This trend will pressure corporate margins.

Manufacturers especially are feeling the pinch of higher unit labor costs because they generally can't pass these increases on to the customers. That's why it should be no surprise to see some firms shift more production abroad.

Compensation expenses are growing faster than 5% per year. If sales don't keep up, it's hard to see continuing strength in private sector hiring. Perhaps this was already reflected in the May payrolls report.

3. US auto debt is growing at a healthy clip.

At the same time, the average maturity of new auto loans is on the rise as well.

4. US student debt directly owned by the federal government is approaching a trillion dollars (this excludes debt guaranteed but not owned by the government).

5. In 2012 credit unions in the US fell in love with consumer debt. The love affair continues.

6. US non-IT business investment has been declining.

Source: HSBC

7. US tax receipts have turned lower, which is often an indicator of a softer patch in the economy. Once gain, this does not seem consistent with a 2.5%-3% projected Q2 GDP growth.

Source: @modestproposal1, ISI

Source: @modestproposal1, Liscio

8. The treasury curve continues to flatten.

9. One indicator that suggests stability in the economy is rail carload count. The chart below shows the trend (purple) ex-coal (coal shipments have collapsed).

Source: aar.org

1. Switching to the equity markets, the US indices continue to march higher. One laggard has been the pharma/biotech sector. On Tuesday, Biogen shares got hammered as its multiple sclerosis treatment missed the trial goals. Also, Valeant's earnings disappointed - again.

Source: Google

Source: Ycharts.com

2. Year-to-date, US small caps (Russell 2000) are now ahead of the S&P500.

Source: Ycharts.com

4. Globally equities look relatively rich based on the historical P/E ratio. However, some argue that extraordinarily low rates justify these valuations.

Source: @DavidInglesTV

1. In credit, the chart below shows the US CLO market (3.0 = "Volcker-compliant" deals). This year, many smaller CLO managers are struggling to place junior debt tranches. It seems that further consolidation in the market is inevitable.

Source: Morgan Stanley

2. According to Cliffwater, direct (corporate) lending outperformed every asset class except buyout over the past couple of decades.

Source: Cliffwater Research

3. In Europe, the latest credit rally has been led by cash securities rather than CDS. That's quite unusual.

Source: @tracyalloway

4. US utilities are struggling with profitability, as leverage continues to rise.

As an aside, while corporate clients take advantage of lower electricity prices (due to cheap natural gas), residential customers, who have no negotiating power, are being gouged.

1. Now on to the energy markets where WTI crude closed at the highest level since last July.

Source: @barchart

2. The chart below shows the recent disconnect between crude oil and US inflation expectations. Something has to give.

3. US gasoline futures have been unusually weak and have not been following crude oil higher.

Blue = gasoline futures, Black - crude oil futures

In fact, the July gasoline contract is below August - which is highly unusual.

Source: @markets, @ShenkMark

1. In other commodity markets, Brixit risk is causing havoc in the cocoa market, one of few commodities denominated in sterling. With the GBP implied volatility highly elevated, the arb between NY and London cocoa has been tricky.

Source: @FT

2. Brazil is struggling with logistics and its congested ports sent sugar prices higher.

Source: @barchart

3. Corn futures rally is still intact.

Source: @barchart

Finally, the US dollar index continues to drift lower. With a great deal of focus on financial conditions these days, the trajectory of the dollar will drive global markets in the near-term.