The Daily Shot And Data - October 13, 2016

By Staff

Thursday, October 13, 2016 8:01 AM EDT

The United States

Greetings,

1. Let's begin with the US where according to the FOMC minutes the hawkish Committee members continue pressing for a rate hike. The decision to hold rates unchanged in September was apparently a "close call."

Source: FOMC; Further reading

2. The futures-implied probability of a rate hike this year is now around 70%.

Source: CME

3. Treasury yields keep grinding higher.

4. Driven by the rate hike expectations, the US dollar rally continues, with the DXY index hitting a 6-month high.

5. The August job openings report came in below consensus but remains at the level that the FOMC will find acceptable for a December hike.

6. The drag on labor markets from the mining sector is subsiding.

Source: h/t Macquarie

7. US mortgage activity seems to be softening. Election-related uncertainty?

The United Kingdom

1. According to the FT, "the [British] pound has fallen to its weakest level since 1848." (effective exchange rate).

Source: @fastFT; Read full article

2. The yields on UK bonds continue to rise as the 10yr gilt hits 1.05%.

3. As the Brexit-related uncertainty persists, here is an outcome tree diagram for the UK.

Source: @Nomura, @TheSquareMile, @EMgist

The Eurozone

1. Switching to the Eurozone, the euro continues to drift lower. This trend is a positive development for the ECB as the currency weakness delivers additional stimulus and may boost (or stabilize) prices. It worked for Japan, albeit temporarily.

2. As discussed previously, industrial production across the Eurozone has been better than the forecasts.

3. Similar to what we've seen with Spain, Italy also continues to issue short-term debt at progressively lower yields (deeper in negative territory).

4. The ECB has more room to buy assets. The issue is around its internal rules governing each nation's debt purchases as a proportion of the total QE program. Changing the ratio - which would involve buying more Spanish and Italian bonds - could be a politically touchy issue.

Source: Deutsche Bank, @joshdigga

5. Non-performing loan balances at Spanish banks continue to decline.

Source: DBRS, @joshdigga

The EU

Elsewhere in Europe, Poland remains firmly in deflation.

Emerging Markets

1. Thai markets remain under pressure as the nation awaits news on the king's health.

The Thai baht (chart below) and the nation's stock market index (second chart below) fell again, while the sovereign CDS spread rose (third chart).

2. The Philippine stock market is also selling off as investors remain cautious on Duterte.

3. Brazil's inflation expectations keep declining, approaching the lower bound of the target inflation. Rate cuts are on the way.

Source: Morgan Stanley, ‏@NickatFP, @joshdigga

4. Russia's trade balance fell to the lowest level since 2008 on stronger-than-expected imports.

5. Saudi interbank liquidity remains tight which is keeping the interbank lending rate elevated.

6. A great deal of South Africa's government debt is owned by foreigners. Given the political uncertainty, the nation's bond market remains vulnerable.

Source: HSBC, ‏@NickatFP, @joshdigga

7. For the 6th day in a row, the PBoC set the midpoint of the renminbi exchange rate lower (much of it driven by a stronger dollar). Given the concerns about devaluation and capital outflows, many investors are unnerved by this trend.

Commodities

1. In the energy markets, the American Petroleum Institute reported a higher-than-expected crude oil inventory build in the US. We will see if this result is confirmed by the US Department of Energy on Thursday.

2. OPEC continues to increase output ahead of the supposed "cut" in production (to be hammered out in November). Analysts remain skeptical.

3. In other commodities, platinum is still selling off in response to a stronger US dollar.

4. The coffee futures rally persists on prospects for lower Brazilian production in the coming years. Is it overdone?

Source: ICE

5. It seems that the epic correction in hog prices is over for now as prices stabilize.

Credit

1. In credit markets, global investors continue to chase US corporate debt.

Source: HSBC, ‏@NickatFP, @joshdigga

2. US investment-grade bonds have completely recovered from the credit correction that started in mid-2015.

3. With all the demand for investment-grade paper, companies have been raising the duration of their debt.

Source: HSBC, ‏@NickatFP, @joshdigga

4. This last chart on credit shows the rising levels of US auto finance as the lower-rated loan issuance continues to increase. A higher proportion of the debt now remains on banks' balance sheets.