Greetings,

We start with several developments in the UK.

1. Based on the latest CIPS/Markit PMI, the UK's manufacturing sector is now in contraction mode for the first time since 2013. The report was materially worse than forecast.

Source: @MarkitEconomics, @fastFT

2. Brexit odds in the betting markets remain anchored in the low 30s, but there are indications that the uncertainty is damaging the nation's economy. The PMI report (above) is one example.

Source: @PredictWise;  (Yes = stay in the EU, No = exit)

Another example is UK's consumer confidence which turned lower on Brexit jitters.

Source: Barclays

3. UK's high current account deficit makes the nation vulnerable in a Brexit scenario.

Source: Credit Suisse

4. Related to the above, the UK is exposed to foreign sentiment for its equity and real estate valuations. In fact, the housing market may be already impacted by the referendum uncertainty.

Source: Credit Suisse

5. Based on bank share valuations, the pound may have more downside (according to Credit Suisse). This is in spite of the sharp Brexit-driven selloff recently.

Source: Credit Suisse

6. Separately, UK's pensions are in trouble as asset portfolios don't keep up with the growth in liabilities. Such underfunding is by no means unique to the UK nor is it limited to pensions. Insurance firms in Europe and Japan are struggling with unprecedently low rates driving down returns in their investment portfolios.

Source: Pension Protection Fund

As an aside, even in the US we see examples of such damage form low rates. Here is MetLife's portfolio yield.

Source: @business

1. Switching to the Eurozone, the euro-area government bonds (EGBs) had displaced bank lending after the Eurozone crisis. This is one reason the ECB is trying to hold down government debt yields, forcing banks to rebalance.

Source: Barclays

2. The ECB (Eurosystem) balance sheet exceeds €3 trillion for the first time since 2012.

3. The Credit Suisse projection for the ECB balance sheet points to downside risks for the euro.

Source: Credit Suisse 

4. Long-term unemployment in the euro area remains persistently high while total employment remains below the 2008 peak.

h/t Josh

h/t Josh

Next, we want to take a look at some global trends.

1. Not only is the global fixed income universe shrinking, but the portion of the market with positive yields has declined sharply.

Source: BofAML

2. Money multipliers for major developed markets (DM) economies have fallen dramatically since the Great Recession.

Source: Morgan Stanley

3. This third chart shows the continuous downgrades to global GDP growth forecasts.

1. In emerging markets we see Malaysian shares down for six straight sessions.

Source: ‏barchart

2. The Philippine peso weakens as elections approach.

Source: ‏Reuters

Note: Chart shows the number of Philippine peso one dollar buys. A higher number means weaker peso.

3. India's oil consumption growth spikes.

Source: JPMorgan

 4. The South Africa's rand and stocks fall sharply (supposedly on profit taking).

Source: barchart  Note: the chart shows the number of rand one dollar buys. A higher number means weaker rand.

Next, we have some data on China.

1. China's industrial profits show more evidence of stimulus.

Source: Macquarie

2. Many economists argue that China's credit-driven recovery is unsustainable.

Source: Citi, h/t Jake

3. Barclays argues that auto sales in China are about to accelerate. Here are a couple of reasons.

Source: Barclays Research

Turning to Japan, here is a good explanation of the BoJ’s three-tier system for negative rates. The goal of this approach is to limit damage to banks who are forced to maintain massive (and rising) excess reserves with the BoJ at negative rates.

Source: Credit Suisse

---

Separately we see the decoupling of the yen and VIX.  In the past, both rose with the risk-off sentiment. The recent yen rally however has been driven more by Japan's domestic factors.

Source: Credit Suisse

Credit Suisse outlines the worsening capital investment weakness in Canada.

Source: Credit Suisse

Back in the United States, vehicle sales beat forecasts and are on target to hit another record. The auto finance market remains very much open for business.

 

Separately, here is US construction spending as a percentage of the GDP. This is why the nation will be facing housing shortages in years to come.

Source: @StateandMetro 

1. In the energy markets, oil falls for the second day as the oversupply concerns (discussed yesterday) return.

Source: barchart

2. Refining margins (especially in Asia) decline.

Source: JPMorgan

That's why refinery businesses such as Valero (VLO) have underperformed.

Source: Ycharts.com

In other commodities markets, grains, especially wheat, have sold off sharply. Some suggest this is profit taking, but the massive global stockpiles of wheat are not helping.

Source: barchart

Source: @sjcasey, @jwilson

A default "chain reaction" in Puerto Rico (as numerous agencies start defaulting) remains a real possibility.

Source: Reuters

Finally, here are a couple of items on asset management.

1. This next chart shows cumulative flows into major asset classes.

Source: Jefferies

2. Activist hedge funds are no longer outperforming the S&P500. Do these funds generate better "risk-adjusted" returns?

Source: @NickatFP

Turning to Food for Thought, we have 5 items this morning:

1. Chinese students come to the US in spite of rising numbers of colleges in China.

Source: ‏@sobata416,  @WSJ 

2. Pass-through firms, such as LLCs, now generate more income than traditional C-corp firms.

Source: ‏@taxfoundation

3. Foreign aid per capita for select European nations.

Source:  ‏@wef 

4. A New York City cab medallion transaction was done at $325K recently (after trading at over $1mm in 2013). Uber is squeezing this business,

Source:‏  @DonutShorts 

5. Average debt per US college graduate by year (updated).

Source:‏  ‏@JoshZumbrun, @WSJ