Greetings,

Once again we start with Deutsche Bank which continues to make headlines. The bank's shares have been a popular short in recent months, a strategy that has proven to be quite lucrative.

Source: @WSJ, Read full article

However, when the news leaked out on Friday that Deutsche may settle with the DOJ for $5.4 billion (vs. the original ask of $14 billion), a short-squeeze ensued. The US listed DB shares spiked 15%.

Some have suggested that the DOJ has leaked the news for political purposes to keep the equity market propped up going into the November elections (which supposedly will help the Democrats). Perhaps.

Source: @CNBC; Read full article

1. Another Eurozone-based bank, however, came under pressure again on Friday. Italy's Monte dei Paschi gave up over 3%.

2. Continuing with the Eurozone, French consumer inflation seems to be gradually recovering.

Source: Eurostat

3. Italy just barely pulled out of deflation. However, the entire increase was driven by higher oil prices. Without the energy contribution, Italy remains in deflation.

4. At the Eurozone level, inflation continues to disappoint. Presumably, the recent oil price spike should work itself through the economy over the next few months to push inflation a bit higher (the transmission into core inflation should be there as well but will take longer).

5. Italian unemployment remains stubbornly high, which adds to concerns about another recession.

6. At the Eurozone level, the declines in unemployment have stalled, with the rate remaining stubbornly above 10%.

7. Greek retail sales surprised to the upside as we continue to see "green shoots" in the nation's economy.

Elsewhere in Europe, the Norwegian krone continued to climb (vs. the euro) on stronger oil prices.

On the other hand, the Swedish krona keeps drifting lower (vs. the euro) as Riksbank hints at further policy easing to "combat low inflation".

The British pound is approaching post-Brexit lows, once again falling below 1.3 dollars.

Speculative accounts are reloading their record high net short British pound positions on the BoE talk of further easing.

1. Australian bonds are bid up again as the global chase for yield returns.

2. Separately, Sydney and Melbourne property prices keep climbing to new highs.

Source: Goldman Sachs, @joshdigga

3. Australia's Capex intentions survey shows sharp declines in mining. The nation's overall business investment as a percentage of the GDP hit multi-year lows.

Source: Nomura, @NickatFP, @joshdigga

Japan's inflation measures continue to disappoint, with the Tokyo "core core" CPI (which is released a month ahead of the national figure) moving into the red.

Source: Goldman Sachs, @joshdigga; "Core core" CPI excludes food and energy

Markets, however, don't see the BoJ doing anything drastic in response to Japan moving back into deflation. Speculative accounts' net long yen exposure is approaching multi-year highs.

1. Elsewhere in Asia, Hong Kong retail sales growth continue to trend deeper into negative territory, significantly missing consensus.

2. Similar to the Australian bond markets, South Korean yields have declined sharply since the global bond selloff.

1. In emerging markets, Brazil's government yields continue to fall in response to rate cut expectations and more foreign money inflows.

2. Brazil definitely needs lower rates as the nation's government debt has risen rapidly as a percentage of the GDP. 

3. Also, lower rates may help with Brazil's rising unemployment (although it hasn't worked well in the Eurozone).

4. Brazil's oil production has completely recovered.

Source: Credit Suisse, @NickatFP, @joshdigga

5. The Mexican peso net speculative short exposure remains near multi-year lows. A crowded trade?

6. Nigeria continues to bleed foreign reserves in an effort to keep the currency stable. More naira pummelling is quite possible in the near-term.

1. In the United States, the core PCE inflation has moved up - now at the highest level since 2014 (which doesn't say much).

2. Market-based inflation expectations are moving higher on the latest oil rally.

With a rise in inflation expectations, US market-implied real rates have moved lower. The 10yr TIPS yield is back below zero, which suggests that US monetary conditions remain highly accommodative. These trends will give the FOMC hawks some ammunition for the next policy debate.

3. On the other hand, the Fed's measure of "price pressures" remains depressed.

4. The so-called "Trimmed Mean PCE" inflation (which many at the Fed monitor closely) is not showing much of a direction.

5. Moreover, consumer inflation expectations in the US are near multi-year lows.

1. In other US economic developments, real consumer spending disappointed.

2. The Fed's Q3 GDP forecasts are converging below 2.5%, a forecast that is lower than the economists' consensus (which is around 2.8%).

Source: Atlanta Fed

Source: NY Fed

3. Credit growth at US banks has been remarkably stable at around 8% per year. Will all the regulatory pressure on Wells Fargo impact this trend? The second chart below shows Wells share prices vs. the banking index (YTD, total return).

 

4. US food/feeds exports have been elevated recently, in part due to higher soy demand (and prices). Is this improvement in exports about to end?

Source: @WSJ, @BenLeubsdorf, @jeffsparshott, @Tmp_Research, Read full article

5. The contribution of housing to US GDP is now at a multi-decade average. While some continue to reminisce about the good old pre-recession days, it's important to remember that it was an anomaly.

Source: Deutsche Bank, @NickatFP, @joshdigga​

1. We now turn to the funding markets where foreign banks got squeezed on dollar funding going into quarter-end. The euro, the yen, and other cross-currency basis blew out, showing strong demand for short-term dollars.

 

2. Dollar GC repo rates shot up above 120bp. 

Source: DTCC

Moreover, the intraday quotes in the overnight bank deposit market spiked above 180bp as foreign banks tried to obtain funding.

3. Much of the dollar liquidity became locked up at the Fed as the RRP uptake rose past $400bn. While we've seen RRP rise to these levels a couple of times before, the shrinking commercial paper market (due to the money funds regulation) added to tightness in dollar funding. This squeeze is exactly why some at the Fed remain uneasy about the use of RRP as a monetary policy tool.

1. In the energy markets, we see the leading index for North Dakota rebounding. Is the Bakken situation stabilizing? 

2. US rig count continues to grind higher gradually - up 34% since May. Much of the increase came from horizontal rigs in the Permian basin.

3. Here is what oil production looked like by country in 2005 and in 2015.

Source: Goldman Sachs, @NickatFP, @joshdigga

4. The next chart shows the global oil cost curve from Goldman.

Source: Goldman Sachs, @NickatFP, @joshdigga

1. In other commodities, copper came to life again on Friday. Are we going to see a bit of a breakout here?

2. Net long speculative exposure in precious metals remains elevated.

3. Lead has gone vertical on mine closures (that have been overlooked when the markets focused on zinc) as well as hot money moving into metals.

4. US bacon deflation is accelerating. Is McRib coming back on a full-time basis?

 

Source: @lydiamulvany, @jenskerritt, Bloomberg.com; Read full article

In global developments, Treasuries in custody at the Fed held for foreign accounts continue to decline. While the reductions in FX reserves in a number of nations is one explanation, are some of the international accounts exiting their US bond holdings for other reasons? 

1. Turning to Food for Thought, women still face significant obstacles in corporate America.

Source: @wef, @Tmp_Research​, Read full article

2. How involved are different Christian groups in their congregations? 

Source: @FactTank, @Tmp_Research; Read full article

3. Americans' trust in political leaders varies dramatically by party affiliation.

Source: @Gallup, @SteveRattner, Read full article

4. Best and worst business tax climates by state.

Source: @taxfoundation @JaredWalczak, @ScottDrenkard, @jdhenchman​, @Tmp_Research​, Read full article

5. Drug overdose deaths in the United States over time.

Source: @NickTimiraos, ‏@Tmp_Research; Read full article