Greetings,

First, if you have a moment, please fill out our quick 3-question survey (from Matt Garrett) on the bond market correction: here. We'll have the results next week. Thanks!

Source: @WSJ, ‏@MarathonWealth

More on global bond markets shortly.

Let's begin with the United States where the latest economic results have been quite poor.

1. The NY Fed's manufacturing index disappoined. Take a look at some of the underlying trends - second chart.

 

Source: NY Fed

2. The Philly Fed manufacturing survey, on the other hand, beat expectations. However, fundamentals remain soft and employment is still contracting.

 

3. US industrial production and capacity utilization declined again, missing forecasts. The slight improvement early this summer was in part helped by utilities cranking on all cylinders to keep the air conditioners around the country running. As that contribution subsidies, we are back to the trend from this Spring.

Further Reading

Here is the manufacturing component of the US industrial production (year-over-year).

4. US retail sales fell in August as predicted by the Bank of America credit card data (previous Daily Shot). The second chart below shows retail sales ex-gas stations (year-over-year).

 

Further Reading

5. Inventory growth came in below expectations. Some suggest that with sales remaining soft, more inventory cutting is on the way.

Source: Investing.com, Further Reading

By the way, here is the year-over-year growth in US business inventories (since 1993).

6. US core PPI came in at 1% (year over year). Where is that inflation we've been promised?

Speaking of inflation, FT Alphaville published an article suggesting that most of US inflation since 1992 came from the "least productive sectors": healthcare, housing, education, and prescription drugs.

Source: @FTAlphaville  h/t @fatdaz

7. As more weak economic data is released, the Atlanta Fed Q3 GDP tracker (GDPNow) is drifting lower. Still, the 3% number seems too high.

Source: @AtlantaFed

8. Also, all the softer-than-expected economic indicators are sending the September US rate hike probability lower.

1. Turning to the UK, the nation's retail sales beat consensus.

2. Here is a detailed map of the August business output recovery.

Source: @MarkitEconomics, @AskLloydsBank

3. Not surprisingly, economists have upgraded their UK GDP forecasts.

Source: @markets

4. Despite the stronger than expected economic performance, the Bank of England hinted that another rate cut is possible. Gilt yields declined in response.

1. Now on to the Eurozone, where (as discussed yesterday) investors were not impressed with the Banca Monte dei Paschi management change as the shares fell further.

2. It's amazing that even with the yields backing up, Spain was able to issue 5yr paper at record lows.

Similarly, here is the French 5yr auction.

3. Portuguese bond yields are grinding higher - approaching the Brexit highs.

4. Greek bond yields are rising again - the 3yr bond is approaching 10%.

5. The Spain - Italy 10yr spread is declining as the market views Spain's political uncertainty receding.

1. Continuing with the bond market, here is the 30yr Bund yield.

2. The chart below shows the sharp Treasury curve steepening over the past few days (30yr-2yr spread). The Wall Street Journal points out how crowded the long treasuries trade had been before the selloff.

 

Source: @WSJ

3. Australian government bonds are still selling off.

Staying with fixed income, let's take a look at credit and funding markets.

1. We had some big outflows from HY bonds - $2.45B to be precise (via LCD News).

Source: @lcdnews

2. Here is an updated chart of global corporate defaults (see link for further reading).

Source: @lcdnews

3. The Goldman Sachs US financial conditions index shows a tightening in response to higher rates and spreads as well as softer equity markets. For now, this index hasn't risen much because the US dollar rally has stalled.

4. MLPs are under pressure again on softer oil prices.

Source: YCharts.com, Further Reading

5. NYSE's report on investor leverage shows an increase this summer. This rise in leverage probably contributed to the sharp sell-off we saw in recent days. 

Source: @JohnKicklighter

6. Larry Summers says that big banks are not safer under Dodd-Frank.

 

Source: @WSJ

7. Speaking of regulation, the 1-month LIBOR is grinding higher as well. This is what happens when one removes a whole private lending industry from the market - a great example of a "market distortion".

8. Speaking of market distortions, despite both the Fed Funds rate and LIBOR rising, savers are not benefitting. CD rates continue to languish.

Source: ‏@boes_ 

9. And here is the ultimate regulation-driven market distortion: negative 10yr US swap spread. More on this later.

1. Now on to emerging markets where Russia is rebuilding its FX reserves. Speculative accounts have been in effect buying rubles from the Russian central bank (for dollars and euros).

2. On Thursday we got some really bad economic numbers from Colombia: industrial production and retail sales. Just awful.

 

3. Israel is still in deflation.

Source: Tradingeconomics.com

At the same time, Israel's manufacturing activity spiked to the highest level since 2010. 

Source: IPLMA, @PoaliMarkeTweet, @tEconomics

4. Ukraine's central bank cut its benchmark rate again as inflation eases.The latest IMF loan tranche is helpful.

Source: Further Reading

5. Most EM currencies stabilized on Thursday, but some remain under pressure. Here is the Philippine peso (down for the seventh day in a row) and the Mexican peso - which is near record lows against the dollar.

 

1. In commodities, the spectacular metallurgical coal price rally continues.

Further Reading

2. Finally, from New Zealand: Got milk?

Source: barchart.com

1. Turning to Food for Thought, here is the "tightening" US presidential race (odds) in the betting markets.

Source: @PredictWise

2. Some unpleasant demographic trends in the US.

 

Source: @NickTimiraos

Source: @NickTimiraos

3. The number of laws enacted by US Congress over time.

Source:  ‏@joshdigga

4. The US is lagging behind other advanced nations in labor force participation, especially among prime-age men.

Source: @joshdigga

Source: @joshdigga

5. Alaska seems to be the only state now with no known Zika cases. Here is the latest data.

Source: @priceonomics