The Daily Shot And Data - March 10, 2016

By Walter Kurtz

Thursday, March 10, 2016 8:37 AM EDT

We begin with the energy markets where the gradual declines in US oil output continue.

Source: EIA

This is the weekly US crude production compared with the previous year.

Let's continue with several other developments in the energy markets.

1. US oil imports are no longer declining.

Source: EIA

2. Crude oil inventories continue to build. Here is oil in storage at Cushing, OK (the WTI settlement hub)

3. Gasoline inventories on the other hand declined more than forecast. This chart shows barrels as well as days of supply.

Gasoline futures jumped 6% in response.

Source: barchart

4. Crude oil also rallied on the back of lower gasoline inventories and was up 5% on the day.

Source: barchart

5. Speaking of inventories, US fuel ethanol in storage hit a record.

Related to the above, we've had quite a rally in the Canadian dollar on the back of firmer crude prices.

Source: barchart

The weakness in crude oil over the past year is taking its toll on some communities. Here is the year-over-year change in quarterly wages in Midland, TX (Permian Basin) and Odessa, TX. These figures include the loss of hours/overtime as well as some layoffs.

Turning to New Zealand, the nation's central bank (RBNZ) unexpectedly cut rates and signaled there may be more to come. Global downside risks were cited. The kiwi dollar fell sharply in response.

Source: barchart

And here is New Zealand's 2-year government note yield.

The chart below shows China's exports by destination. It seems that the exports decline (discussed over the past couple of days) was quite broad. It remains to be seen how much of this decline was due to the New Year holidays.

Source: Nomura

Speaking of New Year's celebrations, China's CPI came in above consensus on higher food prices.

Indeed, China's food CPI (YoY) spiked. This was driven by elevated New Year's holiday prices (it is quite difficult to make seasonal adjustments to compare similar periods on a year-over-year basis around this time of the year.)

Source: @SoberLook

In other emerging economies, here is a look at South Africa's nominal GDP growth. Will the recent bounce in natural resource prices stabilize the situation?

Source: HSBC

The Brazilian real continues to rally. Here are some reasons (Operation Carwash refers to the Petrobras scandal and related investigations).

Source: ‏Bloomberg.com

This next chart shows the US dollar falling against the Brazilian real (the real is rising).

Source: ‏barchart

Brazil's inflation seems to have peaked as the currency impact wanes and domestic demand falls.

Japan's PPI has been negative for 11 months straight - this remains a challenge for the BoJ.

The 2-year treasury - JGB spread hit a multi-year high.

Source: @SoberLook

Zero bank rates in Japan have created demand for high denomination cash notes. Apparently now some Japanese are concerned that banks will begin to dole out negative rates, charging them interest on their deposits.

Source: @fastFT

The rate markets are pricing about 12 bp ECB cut today - which is a less aggressive expectation than the last time. Caution about Draghi's action remains. However, given the recent communications, Draghi is likely to deliver a monetary bazooka.

Source: @SoberLook, h/t Credit Suisse

In the UK the tabloid announcing the Queen's support for Brexit yesterday stands by its front-page story. Buckingham Palace complained to the press regulator (IpPso) saying the Queen never expressed such a view.

Source: the Guardian

In the betting markets, the probability of Brexit remains steady at about a third.

Back in the United States, we continue to get mixed economic data.

1. US mortgage applications for house purchase are gradually (but steadily) climbing. Looking back at the pre-recession data, the index is roughly at levels it was 18 years ago.

2. US wholesalers' inventory-to-sales ratio is at the highest level since the recession. Some of this increase is due to fuel, but ratios for other items have risen significantly as well. Note that the US dollar rally started in 2014.

Here is one of the few areas where inventory/sales ratio is actually declining.

3. US wholesale durable goods sales are still declining.

4. The Atlanta Fed US wage tracker is showing faster wage growth than the Department of Labor's official figures (which showed US wages rising at around 2%). Some have suggested that the official hourly earnings figure is skewed because large numbers of Boomers are retiring, being replaced by the lower-paid Gen-X. Perhaps. Whatever the case, if the Fed is using the Atlanta Fed measure as a forecast, wage growth of 3-3.5% will be sufficient for them to hike again later this year. This posture by the central bank, by the way, could pose significant headwinds to the current rally in risk assets.

Source: ‏Atlanta Fed

5. As discussed yesterday, US small businesses' margins are squeezed by rising labor costs and falling sales prices (due to competition, strong US dollar, etc.)

Source: NFIB

As a result, the percentage of small businesses concerned about higher labor costs is on the rise.

Source: gluskinsheff.com NFIB

Moreover, the percentage of US small businesses planning to give raises declined sharply last month as the economic uncertainty hurt sentiment. Let's see how this develops in March.

Source: gluskinsheff.com NFIB

6. The final item related to the US economy is this strange indicator from the San Francisco Fed called the "Tech Pulse Index". This measure is probably lagging because tech valuations are lower and investors have become more cautious - which should translate into softer activity shortly.

Now let's look at a couple of charts on the issuance volumes in US corporate credit markets.

1. Below is the USD investment grade corporate debt issuance through the end of Feb.

Source: Deutsche Bank

2. And here is the same chart for the USD HY bonds. Investors are focused on quality.

Source: Deutsche Bank

In the equity markets, here is the spread between stock dividend yield and the 10yr government bond yield. Markets are concerned about the stability of dividends, but assuming dividend yield can be maintained, equities look attractive.

Source: Credit Suisse

Speaking of dividends, this chart compares high dividend shares with stocks that have the highest buyback ratios in the S&P 500. Buybacks are not rewarded in this market while dividends are. If the rally continues, however, will the two converge?