The Daily Shot And Data - October 6, 2016

By Staff

Thursday, October 6, 2016 8:42 AM EDT

Greetings,

1. We begin with the United States where we are getting conflicting signals about the labor market. The ADP private jobs report came in below consensus, with the payrolls momentum softening.

Manufacturing remains a drag on US job creation.

Source: ADP

2. On the other hand, the ISM Non-Manufacturing Index (representing the bulk of the economy), which came in sharply better than expected (chart below), suggests that US payrolls growth has improved (second chart below).

3. Moreover, the Gallup US Job Creation Index remains near post-recession highs.

Source: Gallup

4. And then there is the Markit US Services PMI report which, despite a slight improvement, points to a 1% GDP growth in the third quarter and an 115k September payrolls print this Friday (172k is the consensus). Take a look at the commentary below.

Source: Markit Economics

5. In other US developments, US exports are no longer declining.

6. As discussed before, market-based inflation expectations are moving higher (albeit from multi-year lows), giving the FOMC hawks more ammunition to argue for a rate hike this year.

7. The 2-year treasury yield has risen materially over the past few days on increasing rate hike expectations.

8. Higher short-term rates in the US are pushing the dollar higher, especially vs. the yen.

9. Finally, in the US funding markets, the Fed's reverse repo facility (RRP) usage is still quite high (about $300bn) even after the quarter-end. The second chart below shows repo rates in the private markets which are elevated because liquidity remains trapped at the RRP.

Source: DTCC

Next, we have a few charts on Canada from Macquarie.

1. The number of new motor vehicles sold in Canada seems to be out of line with the population growth.

Source: Macquarie, @NickatFP, @joshdigga

2. The nation's export economy is still too reliant on energy.

Source: Macquarie, @NickatFP, @joshdigga

3. Underinvestment in manufacturing is hindering competitiveness.

Source: Macquarie, @NickatFP, @joshdigga

1. Switching to emerging markets, Argentina sold €6.25bn worth of bonds in its first euro-denominated government bond issuance in 15 years. The bonds are trading quite well in this yield-starved market.

Source: Reuters; Read full article

2. Argentina's stocks continue to push higher. The markets love what the new government is doing.

3. Brazil's stock market is also doing quite well as foreign capital continues to flow in.

4. Mexican bond yields are on the rise in response to higher treasury yields and Banxico's aggressive rate hikes.

5. On the other hand, India's rate declines are accelerating on expectations of further RBI easing. Capital inflows are also helping.

6. The Egyptian stock market is moving sharply higher on devaluation expectations (discussed previously).

7. Dubai shares remain under pressure despite higher oil prices.

8. Nigeria's economic activity continues to shrink for the 6th month in a row.

Source: Markit Economics

9. South Africa's business activity, on the other hand, returns to growth.

Source: Standard Bank, Markit Economics

10. Ukraine's foreign reserves rose after the latest round of financing from the IMF.

11. Equity inflows into Turkey have been slow after the coup attempt.

Source: Credit Suisse, @NickatFP, @joshdigga

12. Foreign direct investment in Vietnam is mostly focused on manufacturing.

Source: HSBC, @NickatFP, @joshdigga

1. Next, we go to Europe where the Bank of England November rate cut probability is quickly evaporating as economic indicators remain strong, and inflation expectations rise. The British pound weakness in effect replaced further easing from the BoE.

2. Norway's housing market is heating up, with property prices rising 10% from last year.

3. Sweden's industrial production unexpectedly shrunk from the previous month.

1. Moving to the Eurozone, the currency bloc's retail sales growth took a sharp turn for the worse. On a year-over-year basis, sales grew less than half what was forecast.

French retail sales were especially soft.

2. The ECB (Eurosystem) balance sheet expansion has been quite rapid recently, approaching €3.5 trillion. The QE taper should begin early next year - it's time.

3. Italy's economic activity remains awfully close to another recession.

Source: Markit Economics

4. Italian longer-dated bond yields continue to rise.

5. Other Eurozone bond yields are rising as well. Here is the Irish 30yr government bond yield.

6. Deutsche Bank shares have stabilized, calming the equity markets around the world. On the other hand, the struggling Italian bank Monte dei Paschi remains under pressure.

7. According to HSBC, Italian productivity is lower than it was 20 years ago.

Source: HSBC, @NickatFP, @joshdigga

1. In the energy markets, US crude oil inventories declined for the 5th month in a row. Each decline over the last five weeks has been bigger than expected (analysts expected an inventory increase last week). Note that the large draw five weeks ago was due to Hurricane Hermine.

2. Crude oil continued to rally on the above news, with WTI approaching $50/bbl.

3. Those of us in the Northeast who use heating oil got spoiled last winter by the extraordinarily low prices. Those days seem to be over for now.

4. The production "cuts' that OPEC will supposedly put in place in November are unlikely to hold. The cartel members are notorious for cheating on their quotas.

Source: Goldman Sachs, @joshdigga

1. In other commodities, precious metals remain under pressure. Here is platinum.

2. The "bacon deflation" has been spectacular recently as hog prices hit a 13-year low in a massive capitulation. Speculative accounts have been cutting net long positions since July.

1. In US equity markets, small cap outperformance widens.

2. US bank shares spike on higher rates (and steeper yield curve).

3. Higher rates are also pressuring REITs.

3. Finally (and this probably belongs in the Food for Thought section), shares of Booz Allen got hammered as another company employee has been arrested for stealing sensitive information from the NSA. Edward Snowden II?