The Daily Shot And Data - September 29, 2016
Greetings,
We begin with the energy markets where to most analysts' surprise, OPEC supposedly agreed to implement production cuts - for the first time in years. Perhaps the Saudis struck a conciliatory tone due to escalating domestic challenges (more on this shortly).
Source: WSJ; Read full article
Crude oil and refined products jumped by over 6% in response to this announcement.
Assuming the cuts are going to be implemented (which remains to be seen), will it be enough to prevent the 2017 global oil market surplus that Goldman is forecasting?
Source: Goldman Sachs, @NickatFP, @joshdigga
Currencies of oil producing nations rallied on the OPEC news. The charts below show the Canadian dollar rallying against USD and the Norwegian krone rallying against the euro.
1. In other energy developments, crude oil was also helped by the fourth consecutive weekly inventory decline - with each draw larger than expected.
2. On the other hand, US crude oil production has stabilized. If prices move into the $50-$55/bbl territory, production is likely to begin rising again.
3. US fuel exports have been growing, with propane rising the fastest.
Taking a bit of a detour here, Macquarie points out that one of the key reasons for slow wage growth in the US has been the sharp decline in commodity prices. Oil (as well as steel, coal, natural gas, etc.) shifted labor out of high-paying jobs.
Source: Macquarie, @NickatFP, @joshdigga
As an example, take a look at the unemployment rate spike in the energy focused Stephens County, Oklahoma. Many of these jobs are not coming back in the near-term and will likely be replaced by lower wage employment.
1. Now on to the US, where we stay for a moment with weak earnings growth. An article from the NY Fed suggests that aging population may explain as much as a third of the decline in real wage growth. Note that this problem is not unique to the US and is especially acute in Japan.
Source: NY Fed, @RakeshKochhar, @Tmp_Research; Read full article
2. The media is once again touting improvements in US durable goods orders.
Source: CNBC; Read full article
On a year-over-year basis, however, the situation isn't as rosy - orders are still down materially from last year.
Moreover, capital goods shipments continue to worsen, underscoring the ongoing US manufacturing recession.
3. Yesterday we saw August US consumer confidence rise to the highest level since 2007. It's interesting that the increase in confidence was most pronounced in the group whose household income is under $15k/year. The Trump effect?
h/t Claude, @bespokeinvest
4. The Atlanta Fed third quarter GDP tracker (GDPNow) continues to decline and is now in line with economists' consensus (2.8%). However, this forecast is still way above the 1% that Markit Economics has been predicting (the latest forecast came out this week).
Source: @AtlantaFed
5. The NY Fed's NowCast model's prediction for the 4th quarter GDP also continues to decline. The latest forecast from a week ago has Q4 growth at 1.2%.
Source: NY Fed
Canada remains heavily exposed to property markets, as housing prices in certain areas grow at unsustainable rates.
Source: @ConnectedWealth, @sobata416
Canadian labor markets are too heavily concentrated in construction.
Source: Macquarie, @NickatFP, @joshdigga
Moreover, housing-related transactions and the revenue generated from them are reaching a feverish pitch. Of course, many of our friends north of the border would argue that there is nothing wrong with the chart below.
Source: Macquarie, @NickatFP, @joshdigga
1. Turning to the UK, the nation's corporate investment expectations are collapsing across the board. Much is being put on hold until the trade situation with the EU becomes clearer. This does not bode well for near-term growth.
Source: Natixis, @joshdigga
2. We received the following letter to the editor in reference to the UK's residential property market.
I was looking at the mortgage approvals rate here in the UK earlier in the week and came across conflicting comments from the BBA and the Council of Mortgage Lenders (CML). I saw you quoted the BBA in yesterday’s shot, here’s a link to the CML press release. The Bank of England’s provisional non-seasonally-adjusted August figure is flat year-on-year. My personal expectation is that the stamp duty hike in April brought buy-to-let transactions forward and has weighed on them since but that the underlying market drivers remain unchanged.
Yours,
Julian
Source: CML
Source: HM Revenue & Customs
3. The UK is about to face a massive retirement wave. Tightening immigration will introduce some of the "Japanese effects" into the economy.
Source: Goldman Sachs, @joshdigga
Elsewhere in Europe, Sweden's consumer confidence jumps unexpectedly.
1. Now on to the Eurozone where Deutsche Bank (DB) shares stabilize as the market learns of the bank's plans to sell assets in order to improve capitalization. Much more will be needed to keep the DB boogeyman from haunting the European banking industry. Meanwhile, UniCredit expects to start raising capital after Italy's referendum via share and asset sales (could be as much as €15-16 billion).
Source: WSJ; Read full article
Here is Wednesday's Deutsche Bank share rally in perspective.
2. Germany once again auctioned off 2-year government notes at record low yield.
3. Italy's consumer confidence continues to drift lower.
4. France is struggling with soft labor markets across both services and manufacturing sectors.
Source: Natixis, @joshdigga
5. HSBC forecasts Spain to remain the "star performer" among the Eurozone periphery. Greece is looking at real improvements as well.
Source: HSBC, @NickatFP, @joshdigga
6. Weak sterling is slowing Eurozone's exports to the UK. The impact if this trade weakening is sufficient to create a drag on the currency bloc's industrial production.
Source: HSBC, @NickatFP, @joshdigga
7. The final chart on the Eurozone shows the ECB's so-called shadow rate, which suggests that the super easy monetary policy is here to stay.
Source: Macquarie, @NickatFP, @joshdigga
1. Next, we go to Japan where we see a significant difference in dollar-yen trading during different trading hours. In NY they sell the yen while in Tokyo, they are buying.
Source: Deutsche Bank, @NickatFP, @joshdigga
2. We discussed the collapse in interest rate volatility for the dollar rate markets (chart below). The same trend is taking place in Japan (second chart below).
Source: Credit Suisse, @NickatFP, @joshdigga
3. Japan's corporate savings rate is rising again just as households save less.
Source: Morgan Stanley, @NickatFP, @joshdigga
4. Next is a letter to the editor regarding yesterday's chart on rising labor force participation in Japan.
Regarding your chart on % of Japan’s 25 - 54 working … Japanese government a couple of years ago initiated a policy to get women into the workforce to help offset the demographic challenge. Japanese women earn about 30% less than the men. One of the highest discrepancies globally, I understand. Naturally, Japanese companies are more than happy to hire employees at a 30% discount. Being Japan, this inequity may take some time to correct. In the medium term, it is hard to see the rising participation of women in the workforce lifting average wages.
Nick
Source: @wef, @Tmp_Research; Read full article
1. Moving to Emerging markets, Brazil's central bank is getting ready for rate cuts - something that is very much needed to get the economy going.
Source: Reuters; Read full article
Brazil's domestic bond yields continue to decline.
2. The Mexican peso rallied again, this time in response to sharply higher oil prices.
3. Mexico's unemployment rate keeps falling. Banxico is likely to follow the Fed's lead in raising rates.
4. The Russian ruble followed crude oil higher.
5. Saudi shares have been in freefall. Here is the overall stock market index followed by the banking index.
Saudi 12-month FX forwards are once again pricing a devaluation. Is this market pressure the reason the Saudis are finally willing to agree on production cuts? Wednesday's oil rally will certainly help stabilize these markets.
Source: Bloomberg
6. Just as in Brazil, India's bond yields continue to decline in anticipation of further RBI cuts. Capital inflows are also helping.
7. Some smaller EM equity markets are showing strong rallies. Here is Costa Rica and Bulgaria. Once again, foreign capital inflows have been helpful.
The massive quarter-end rotation in the repo markets continues, with the RRP demand hitting $272 billion. The spread between the private repo market and the RRP has now hit 50-55bp.
Source: DTCC
In US equity markets, two sectors showed significant underperformance this month: retail and homebuilders.
1. In commodities, palladium and platinum continue moving in opposite directions.
2. Finally, the sugar-high continues.
1. Turning to Food for Thought, China is ramping up its nuclear power capability.
Source: EIA, Read full article
2. Monday's presidential debate actually wasn't as widely viewed as the absolute numbers would suggest. Only a third of eligible voters watched it.
Source: @voxdotcom, @Tmp_Research; Read full article
3. Amazon (AMZN) is investing heavily in the grocery delivery business.
Source: @business, @Tmp_Research; Read full article
4. US teen births hit a new low.
Source: @voxdotcom, @Tmp_Research; Read full article
5. Low-income households in the US rely heavily on cash transactions.
Source: S&P Global Ratings, @joshdigga
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