The Daily Shot And Data - October 4, 2016

By Staff

Tuesday, October 4, 2016 7:51 AM EDT

Greetings,

1. We begin with emerging markets where the Mexican peso continues to rally on stronger oil prices.

2. The Russian ruble is moving higher as well.

3. Russia's economy is showing more signs of stabilization as the manufacturing sector PMI came in above expectations (see commentary from Markit).

Source: Markit Economics

4. With crude oil moving higher and foreign capital chasing yield, Russian bond yields have resumed their declines.

Here is a comment from S&P Global on the topic.

S&P Global Ratings: Foreign portfolio flows into emerging markets increased to above US$25 billion, up from US$23 billion in August, and US$16 billion in July, according to estimates by the Institute for International Finance (IIF).

"Capital flows to emerging markets have been supported by the very accommodative monetary policy stance in advanced economies," said S&P Global Ratings economist, Tatiana Lysenko.

5. Staying with BRIC nations, Indian and Brazilian bond yield declines seem to be accelerating.

6. The market is betting on declining inflation in Brazil as the nation's 5yr breakeven inflation expectations drop below 5.5%.

7. Brazil continues to struggle with a significant credit contraction while default rates on household loans are rising.

Source: ‏Credit Suisse, @NickatFP, @joshdigga

8. Indonesia's inflation is approaching the lower boundary of the central bank's target range. More rate cuts are coming.

9. The Turkish lira remains under pressure.

10. The Gulf shares took a tumble after the long weekend - here are the Abu Dhabi and Dubai markets.

11. Egypt's stock market rallied 3% as investors prepare for the currency devaluation. A weaker currency is expected to make the nation's companies more competitive. Egypt's companies that generate profits abroad will be more valuable for the EGP-based investors.

Indeed, the market continues to bet on a significant devaluation in the next few months (the chart below shows the 3-month USD/EGP forward).

12. China continues to see capital outflows.

Source: ‏Deutsche Bank, @NickatFP, @joshdigga

13. China's stock market margin (buying shares with borrowed money) has declined massively since the bubble of 2015 but remains elevated relative to other nations.

Source: ‏Goldman Sachs, @NickatFP, @joshdigga

14. S&P Global Rating's "negative watch" list in emerging markets sovereigns remains quite large relative to historical levels.

Source: S&P Global Ratings

1. Switching to Europe, Hungary's manufacturing activity suddenly accelerates.

Source: Tradingeconomics.com

2. The Norwegian krone continues to rally with oil. A stronger manufacturing report from Markit also helped.

3. Swiss retail sales missed economists' forecasts while the year-over-year trend looks terrible.

1. Now on to the UK, where the pound gave up another percent, hitting the lowest level since the Brexit vote. As a result of the sterling weakness, UK's market-based inflation expectations keep rising.

2. The UK manufacturing activity in September surprised to the upside, rising to the highest level in over two years.

Source: Tradingeconomics.com

Source: Markit Economics

1. In the Eurozone, the trade-weighted euro continues to climb, now driven primarily by the British pound weakness. This is not what the ECB wants to see.

2. The French government once again auctioned off a 12-month bill at record low yield.

3. The Eurozone banking system was still struggling to obtain dollar funding on Monday - even after the quarter-end. Cross-currency basis continued to widen. We should see the basis contract this week as a significant amount of dollar liquidity comes out of the Fed's RRP.

Source: Bloomberg

Australian bond yields suddenly jumped after the Labor Day holiday as the "safe-haven" demand declines with Deutsche bank's stabilization. For now.

Source: Investing.com

Economic figures from Canada remain choppy. Here is the latest Manufacturing PMI report summary.

Source: Markit Economics

1. In the United States, market-based inflation expectations continue to climb with oil. This is another indicator that the FOMC hawks are likely to bring up. The futures-implied probability of a rate hike by the end of 2016 is now over 60%.

Source: CME

2. US construction spending has stalled on a year-over-year basis.

The weakness in construction spending was driven by public construction, which has declined sharply since last year. The second chart below shows spending on roads in the US. It seems the country has other priorities, such as funding its activities and the infrastructure in Afghanistan.

3. The ISM Manufacturing PMI showed some improvement as new orders rose and the backlog of orders stabilized. While inventories continued to shrink for the 15th month in a row, customer inventories suddenly rose. Here is a summary.

Source: ISM

4. US auto sales have been softer than the recent trend but the latest figures beat consensus. Truck sales continue to outpace cars.

Source: Investing.com

1. Turning to commodities, Brent crude remains firmly above $50/bbl.

2. Coking coal has had a spectacular rally.

3. Lead prices jumped another 3%. Amazing.

4. Wheat selloff has resumed.

5. Not all grains are having trouble finding a bid. Rice prices jumped 3%.

6. The platinum-palladium divergence persists.

1. In the equity markets, US utilities are getting hammered after poor earnings and slightly higher longer-term rates.

2. Asset management fee pressures forced Janus (US) and Henderson (UK) to merge. The markets really like this deal as the shares of both firms jumped sharply.