The Daily Shot And Data - May 12, 2016

By Walter Kurtz

Thursday, May 12, 2016 7:04 AM EDT

Greetings,

We begin with the energy markets where crude oil futures rose sharply in response to the first US inventory draw in weeks. Brent was up over 8% in two days, rising above $47/bbl.

Source: @barchart

US gasoline futures rose 5% on Wednesday.

Source: @barchart

The inventory declines driving this rally took place at the Gulf Coast storage facilities. Oil in storage at Cushing, OK (the settlement hub for WTI futures), however, hit a new record.

US crude oil production fell to 8.8Mbbl/d. The question now is whether firmer crude prices will slow these declines, given that a number of shale operations are profitable at these levels.

The global floating crude oil storage inventories have risen sharply. The market remains well supplied.

Source: Deutsche Bank, @joshdigga

Some are suggesting that the recent rally is a seasonal effect and declines are likely to follow. Perhaps.

Source: ‏@troylocklear

Separately, a number of nations (such as Iraq) are completely dependent on oil exports.

Source: @wef, @jsblokland

In other commodity markets, sugar futures surged nearly 5% on the day.

Source: @barchart

The next chart suggests that gold prices are still driven by real US rates (as one would expect).

Source: ‏@Callum_Thomas

Now let's shift to China where we are tracking the following trends.

1. The nation's stock market remains under pressure.

Source: Google

2. Brisk home sales in top cities continue.

Source: Macquarie

3. Price-to-income ratios on Chinese residential properties show frothy valuations in major metro areas.

Source: Credit Suisse

4. China's headline CPI has been all about pork prices lately. CPI ex-food remains quite low.

Source: Morgan Stanley

Source: @fastFT

As an aside, US pork prices are firming up as well.

Source: @barchart

It's worth noting that as Taiwan inaugurates the new government, the China-Taiwan tensions will escalate.

Source: Reuters

It seems that most Taiwanese prefer the status quo vs. either reunification with China or independence - at least for now.

‏Source: @EMgist, National Chengchi Uni survey

Next, we have some updates on Japan.

1. Japan's current account surplus hit the highest level in 9 years.

2. Japan's banks are increasingly moving into foreign assets (in response lack of yield in Japan), financing these assets via interbank currency borrowing or FX deposits.

Source: Barclays

3. We see more evidence of Japan's drive to push inflation higher stalling. The recent yen strength is likely to dampen inflation even more.

Source: Morgan Stanley, ‏@joshdigga

Next, we have some updates on emerging markets.

1. Brazil retail sales came in worse than forecast. More economists are downgrading their 2016 GDP forecasts.

Source: Goldman Sachs

One area that may provide some tailwinds to the economy is the decline in domestic interest rates (driven by the hopes for new leadership). Whether any of this will make it into the real economy remains to be seen.

Source: Citi, ‏@joshdigga

2. According to MNI, Russia's consumer sentiment has finally stabilized (as inflation falls).

Source: ‏@MNIIndicators

3. The Philippines is not concerned about aging population or shrinking labor force - an issue plaguing many of the larger economies. This should help with growth.

Source: Natixis, ‏@joshdigga

4. Economists are predicting stronger growth in Chile.

Source: Credit Suisse, ‏@joshdigga

Now on to the Eurozone.

1. Spain issues a 50-year government bond. Amazing. Some of the new longer-dated debt has been pressuring shorter maturities, steepening yield curves in several nations.

2. Concerns over weak capitalization are pressuring UniCredit shares (Italy's largest bank by assets) despite better-than-expected profits. The whole banking sector is near multi-year lows.

Source: Google

It's important to note that nonperforming loans in Italy have peaked, driven by the decline in bad corporate loans.

Source: Goldman Sachs

3. Greek bond yields drop in response to rumors that the ECB may consider waiving restrictions on Greek debt to be used as collateral.

Source: ‏@Schuldensuehner

4. Eurozone household deleveraging continues.

Source: Deutsche Bank

5. The Eurozone sovereign crisis really derailed the EMU recovery (as compared to the US for example).

Source: @CEAChair

1. In the UK, here are the latest Brexit poll results. The second chart below shows the Brexit risk index.

Source: Credit Suisse

Source: @jbjakobsen

2. The UK industrial sector fell back into recession as manufacturing stalls. This is mostly in response to weak demand globally but some suggest that the Brexit uncertainty also played a role.

3. On the other hand, commercial construction is booming. It seems that some large portion of the business community is not too concerned,

Source: ‏@CapEconProperty

Swedish inflation expectations are rising. Should Riksbank be more concerned about its QE program and negative rates?

Source: @anwallstrom

Canadian household leverage continues to rise to levels not seen in a couple of decades. All is well.

Source: @OECD_Stat

Also, the condo boom in Canada continues.

Source: @joshdigga

In the United States, many point out that the Q1 GDP growth calculations may not have the proper seasonal adjustment, making the economy look weaker than it actually is. Perhaps.

Source: ‏@janzilinsky

Next, we have a few charts from Macquarie on the global service sector.

1. World employment share by industry shows services becoming a larger portion of the global economic activity. This trend is expected to continue.

Source: Macquarie

2. Note that at least in the US, the share of expenditures on services is much higher for the older consumers.

Source: Macquarie

3. Moreover, seniors as a percentage of the population will continue to increase - thus raising demand for services.

Source: Macquarie

Turning to the equity markets ...

1. ... US retail shares have been hammered.

Source: Ycharts.com

2. It doesn't help that Staples and Office Depot failed merger made analysts question the sustainability of these businesses on a standalone basis - as Amazon puts pressure on the sector.

Source: Google

3. Value shares have been outperforming growth in recent weeks.

Source: Ycharts.com

4. The next chart shows that spin-off companies outperform the ex-parent over time.

Source: ‏@bySamRo, Citi

1. In credit markets, here is how private sector debt has grown by country before and after the Great Recession.

Source: Citi, @joshdigga

2. Here is another HY energy name (many of us used to love trading) falling victim to the oil dislocation. That's a big chunk of debt to be restructured.

Source: @W SJ

3. Puerto Rico bonds are still under pressure as the situation remains precarious.

Source: ‏@LPLResearch

3. Sub-prime mortgages have their place in the housing finance market (in spite of all the hysteria associated with the product). Non-bank lenders are stepping in to fill the void left by banks.

Source: ‏@pdacosta

Finally, we have a comment on asset management. On average, equity hedge funds are basically just market beta less the fees. These results are a disaster for the industry.