The Daily Shot And Data - March 21, 2016

By Walter Kurtz

Monday, March 21, 2016 11:50 AM EDT

Greetings,

We start with Russia where the central bank did not cut rates in spite of falling inflation. Given the persistent economic weakness, the rationale for such policy is unclear other than an attempt to strengthen the ruble further. This is certainly a hawkish stance by the Bank of Russia.

Source: Natixis

Driven by firmer energy prices, a broadly weaker US dollar, and the central bank's hawkish stance, the Russian ruble indeed continues to strengthen (chart shows how many rubles one dollar buys).

Source: barchart

On a year-to-date basis, the ruble has diverged from the Mexican peso and is now up nearly 7%. Here is the relative performance of the ruble (RUB), the Brazilian real (BRL), and the Mexican peso (MXN) vs. USD.

Source: @SoberLook

We now see speculative accounts jumping into long Russian ruble positions, betting on further appreciation.

Turning to other emerging markets, here are a few updates.

1. Colombia's central bank hiked the benchmark rate 25 bp to stem inflation and strengthen the currency.

2. Argentina's current account deficit hits a record. It's a tough road ahead for Mauricio Macri.

3. Egypt's unofficial inflation spikes and is expected to worsen as Cairo devalued the currency last week. That's why the central bank hiked rates more than expected.

Source: ‏@jsblokland, @steve_hanke

4. When it comes to tracking demand for oil, most analysts focus on China. However, India's demand for fuel is on the rise and is expected to rival that of China.

Source: Macquarie

5. Speaking of crude oil, Iraq's production hit a new high recently.

Source: Credit Suisse, h/t Josh

6. Singapore's labor market stalls on China's slowdown.

Source: BAML, h/t Josh

Here are some updates on China.

1. The country's business sentiment remains soft.

Source: Goldman Sachs, h/t Josh

2. The PBoC continues to strengthen the yuan, taking advantage of a broadly softer US dollar.

3. Deutsche Bank points out that capital outflows from China actually started after the State Administration of Foreign Exchange (SAFE) loosened controls on trade-related currency transactions.

Source: Deutsche Bank, h/t Josh

And this is what happened: all of a sudden we have a discrepancy between goods imported and payments made for those goods. The spread is the dollars leaving the country - unrelated to trade.

Source: Deutsche Bank, h/t Josh

4. China's working-age population is now declining as a result of the on-child policy as well as other demographic factors.

Source: Nomura, h/t Josh

In Japan the 30y JGB yield hits record low.

In fact, here is the percentage of global government bonds below 1% as well as those with negative yields.

Source: @Vconomics

Speaking of negative rates, this chart shows how much the banking sector in each country with negative overnight rates is losing annually on reserve balances.

Source: @CapEconEurope, h/t Josh

Now let's consider a few trends in the Eurozone.

1. This is Italian 5-year yield.

Source: Investing.com

2. The Eurozone's monetary transmission hasn't worked well for the Eurozone consumer as it has for the corporate sector (companies are benefiting more from negative ECB rates than the consumer).

Source: @CapEconEurope

3. Which Eurozone nation is most exposed to China?

Source: @CapEconEurope

Globally, Goldman Sachs views the recent ECB and Fed actions as a coordinated move to ease financial conditions. Perhaps.

Source: Goldman Sachs

As a result of the FOMC's announcement, we saw TIPS (inflation-linked treasuries) outperforming after the FOMC meeting.

Source: Ycharts.com

The breakeven inflation expectations rates rose (slower rate increases are likely to raise inflation).

Another way to look at this is that the FOMC statement last week had an easing effect, with the 5yr real rates turning negative again.

Here are several developments in the US economy.

1. The ECRI leading index for the US remains soft based on recent history but has risen in the past few weeks.

Source: ECRI

2. As discussed before, US retail sales are trending higher.

3. US household formation slows again. The data here is relatively noisy but this is important to watch as an indicator of housing demand.

Source: @SoberLook, U.S. Census Bureau

4. Is US wage growth improving? Here are all the noisy US wage growth indices combined into a single fitted indicator.

Source: Goldman Sachs

5. Used car prices in the US fell this year but remain elevated relative to pre-recession levels.

Source: Manheim

Next, let's take a look at a couple of observations regarding US presidential elections.

1. Here is the impact of economic metrics on US presidential elections.

Source: Goldman Sachs

2. US general election poll spreads (which are especially wide in the betting markets) are expected to tighten in late spring, early summer.

Source: Goldman Sachs

Turning to the credit markets, we have some nice charts from our friends at BofA Merrill Lynch.

1. The percentage of investors expecting deterioration in HY credit quality (in the next 6 months) is the highest since 2008.

2. Here is the US corporate bond market growth.

3. The next chart shows "distressed" corporate bonds as a percentage of all bonds with yields greater than 10%. As a result, we are starting to see the Bloomberg Bankruptcy Index edging up (modestly) .

Source: BAML

4. After massive withdrawals, leveraged loan fund flows finally turn positive.

Source: BAML

5. The primary CLO market remains weak. Also shown are the CLO balances with the Volcker-friendly CLO 3.0 in green. In addition to other adjustments, 3.0 doesn't permit corporate bonds in the collateral portfolio.

Source: BAML

6. US post-recession CLO issue spreads are starting to ease. This should help with new deals.

Source: BAML

In other fixed income markets, the 10yr and 30yr treasury delivery fails hit record levels. A number of long-dated treasuries have been trading on "special" as demand to borrow this paper jumps. With the supply tight, the spike in fails is not surprising.

Source: BAML

Finally, in commodities markets we see the BLS Metals Index (physical metal pricing) finally bounce off the lows. If this persists, it should be a positive for a number of emerging economies.