The United States

1. The US dollar continues to grind higher as the market senses the impending rate hike before the year-end. As discussed before, this is typically bad news for risk assets, especially emerging markets.

2. US PPI came in a bit higher than consensus, giving hawkish members of the FOMC more ammunition.

3. Market-based inflation expectations are also recovering on higher oil prices.

Source: St. Louis Fed

4. The one inflation measure that has not been supportive of the Fed's goal to hike rates is the University of Michigan longer-term consumer inflation expectation. However, if gasoline prices continue to move higher, this indicator will also stabilize.

5. Speaking of U.Michigan's survey, consumer sentiment missed economists' forecast. Consumer expectations (second chart below) were particularly soft. Elections uncertainty?

 

6. On the other hand, US retail sales came in better than expected. Ex-autos, sales are just above 2.5% year-over-year, while sales excluding gasoline (second chart) are about 3% from the same time last year.

 

7. Speaking of autos, US vehicle and auto parts inventory-to-sales ratio remains elevated. 

8. The Atlanta Fed's GDPNow model is now predicting the third quarter GDP growth to come in below 2% (annualized) - the model has consistently been downgrading the forecast since early August. 

Source: @AtlantaFed; Further reading

On the other hand, the NY Fed nowcast model shows growth at 2.3%. The NY Fed model also has the fourth quarter growth at 1.6%. Expansion of 2% a year or slower seems to be the "new normal" for the US.

Source: NY Fed; Further reading

Source: NY Fed; Further reading

The United Kingdom

1. Switching to the UK, the British pound remains under pressure after a small bounce. The notion of "Hard Brexit" - which seems to be the path Theresa May's government is taking - has been spooking investors.

2. London's financial sector employment is materially above the pre-recession levels - very different from what happened in New York City. Hard Brexit will certainly reverse this trend.

Source: Credit Suisse, @NickatFP, @joshdigga

3. Separately, Credit Suisse points out that outside of London, UK homes are now more affordable than in 2007 (measured as house price to earnings ratio).

Source: Credit Suisse, @NickatFP, @joshdigga

The Eurozone

1. The euro has been drifting lower on the back of US rate hike expectations - a welcome development for the ECB. 

2. Portugal's bond yields continue to decline on hopes that DBRS will maintain its investment-grade rating on the nation's bonds. 

Emerging Markets

1. Let's begin this section with India, where wholesale inflation came in below consensus. Once again, this provides support for those calling for the RBI to cut rates further. The central bank is likely to do just that in the months ahead.

2. At the same time, India's economic indicators show improvement. Exports and loan growth both increased.

 

3. China's inflation figures were stronger than expected, suggesting that deflationary risks may be abating. The nation's producer prices rose on a year-over-year basis for the first time since 2012 (second chart below).

 

4. Brazil's bond yields are still declining on rate cut expectations as well as inflows of foreign capital.

5. Speculative accounts continue to pile into long-ruble positions. A crowded trade?

6. Nigeria's inflation is still climbing as a result of the June-August currency devaluation.

7. The Thai stock market has staged a sharp recovery after the King's death.

The nation, however, still faces political uncertainty.

Source: BBC; Read full article

Asia

Elsewhere in Asia, Singapore's economy seems to have hit a wall.
1. The GDP unexpectedly declined by 4%.

2. Retail sales came in well below expectations as the downward trend continues.

 

3. As a result of these economic reports, the Singapore dollar has been under pressure.

Energy

1. In the crude oil markets, US oil rig count is gradually creeping up. Some producers have been able to lock in higher prices in the futures markets, allowing them to eke out a bit of profit.

2. Speculative accounts are piling into net long crude oil positions. Just as the situation with the long-ruble exposure, this could turn out to be a crowded trade.

Commodities

1. In other commodities markets, speculative net long positioning in precious metals fell sharply last week on US rate hike expectations and a stronger US dollar.

2. Palm oil rally resumed late last week with China's futures traders piling in again.

3. US grains are staging quite a bounce as hedge funds (who had been holding record short exposure) cover.

Credit

1. The latest mutual fund regulations (this is separate from money market funds) will force holders of less liquid securities to maintain larger liquidity cushions to meet redemptions. These rules are expected to hurt the muni market. 

Source: The Bond Buyer, @MattGarrett3; Read full article

Indeed, munis have been selling off a bit as a result of higher Treasury yields as well as potential selling by mutual funds to raise liquidity.

2. Separately, here is a letter to the editor on Friday's note related to small business lending in the US. 

I think something is wrong with the graph for small business lending. All the rates look very high. 

I don't think North Dakota businesses are paying 62% APR on loans.

Vivek

Here is a reply from the author of these charts. Note that "shadow banking" has stepped in where traditional bank credit is not available.
 

Hi Vivek, 
I work at Fundera, the small business loan marketplace that aggregated and published the data that appeared in The Daily Shot.

There are two answers here:

1. The overall rates seem high because these are, by and large, alternativeloans rather than bank loans. If they were loans made by banks, you would see APRs of around 6%, four But roughly 4 in 5 small business owners get turned away by banks these days (the '08 recession caused a huge crunch in small business credit). 

As a result, alternative lenders -- many of them online, which are the ones we work with mainly -- popped up to service that gap. Since they're taking on substantially risky investments (as small business always has been), these alternative lenders charge higher APRs. Also, some of these loans are small and short -- we're talking $5,000 over the course of 6 months, with a daily repayment schedule -- so the APRs might seem quite high (even 100% or more) but the cost of the loan to the business owner isn't actually so crazy. Keep in mind, for these SMBs it's either a pricey loan or no credit at all.

2. Rates in North Dakota are much higher than average for a few reasons... But as you can see from the two geographical maps Lev pulled (orange and turquoise), business owners in North Dakota (a) fall into the lowest credit score bucket and (b) receive the smallest loans. Credit score is the number one driverof loan eligibility, rates, and terms, so that would be why ND businesses have such high APRs on average. Secondarily, Fundera has worked with a relatively small batch of entrepreneurs in North Dakota (compared to NY, CA, TX...), so our sample size wasn't as robust (but still notable for its trends). 

All my best,
Ben Rashkovich
ben@fundera.com

Funding Markets

1. As prime money market funds shrink, so does the demand for commercial paper (CP). Here is the total US CP debt outstanding (chart below), followed by financial (bank-issued) commercial paper (second chart below).

 

2. Bank reserves (cash held at the Fed) are at the lowest level since 2013 as the Fed's RRP absorbs a significant amount of liquidity. 

Global Developments

1. Central banks continue to buy assets, pushing the amount of negative-yielding bonds to new highs.
 

Source: Credit Suisse, ‏@sobata416

2. Finally, here are the results of our survey ("Central Bankers' Next Move" - via Matt Garrett). The results are based on just over one thousand participants.

I. Over the past month, there have been conflicting signals out of the major central banks (CB) (BOJ and ECB QE taper trial balloons getting quickly walked back). What are we most likely to see first from these CBs?
 

II. The Fed has not hiked yet in 2016 and their projections at the start of the year were for 4 hikes. With a near consensus for a hike by year-end at its last meeting, what is the Fed most likely to do through the March 2017 meeting?
 

III. What will be the biggest problem for major central banks over the next 12 months?
 

Food for Thought

1. We begin the Food for Thought^™ section with rising insurance premium in the US trucking industry as large insurance firms bail.

Source: @WSJ; Read full article
2. US airline fares, adjusted for inflation, are cheapest since the recession.

Source: @mbusigin
3. After the death of King Bhumibol (Thailand), Queen Elizabeth II became the longest reigning living monarch in the world.

Source: @StatistaCharts , ‏@Tmp_Research; Read full article

4. Mammograms result in many false positives, calling into question their efficacy.

Source: @paul1kirby, @voxdotcom, ‏@Tmp_Research; Read full article

5. India stands out when it comes to "mobile gender gap."

Source: @WSJ; Read full article

6. The shift in gun ownership in the US.

Source: @nytimes, ‏@Tmp_Research; Read full article