The Daily Shot And Data - September 30, 2016
Greetings,
We begin with the Eurozone where the Deutsche Bank (DB) boogeyman is back. The market was shaken by the news (somewhat reminiscent of Bear Stearns in early 2008) that several large clients started reducing credit exposure to the bank.
Source: Bloomberg; Read full article
Deutsche shares sold off sharply in US trading.
Moreover, the implied volatility on US-listed DB shares spiked to multi-year highs.
The US stock market got pummelled in response to the news on Deutsche. Markets in Japan and HK are lower as well.
1. In other Eurozone developments, the currency bloc's economic and business sentiment surprised to the upside.
Source: Eurostat
Source: Eurostat
2. In a welcome development for the ECB, German consumer inflation is waking up. With the recent pop in oil prices, market-based inflation expectations should start moving higher. Some European bond yields also rose a bit.
3. Spain is finally out of deflation, although just barely (and below expectations).
4. Despite higher oil prices, Irish bond yields were pushed lower.
1. Switching to the UK, the nation's mortgage approval numbers continue to decline.
2. The British pound is under pressure again as the BoE threatens further easing.
3. The combination a weaker pound and higher oil prices sent UK's market-based inflation expectations sharply higher.
1. Now on to Japan where retail sales came in materially below consensus. Note that the spikes in the charts below are related to the consumption tax increase - if you ignore those for a moment, the trend looks terrible.
2. Foreigners dumped a massive amount of Japanese bonds.
1. Next, we look at emerging markets, where India conducted some "surgical strikes" in Pakistan.
Source: The Indian Express; Read full article
The markets weren't too happy about this event, sending Indian bond yields higher (chart below) and the rupee and the stock market lower (second and third chart below).
2. Foreign tourism to Turkey has collapsed which is harming businesses focused on servicing visitors.
The Turkish lira is under pressure again.
3. South Africa's credit growth continues to slow.
4. Once again we see some volatility in the Saudi riyal. These are tiny moves around the peg but they usually appear at the time of rising devaluation bets. It is likely that the Saudis are using up reserves to defend the peg and at some point they may decide to let the currency "adjust".
5. Mexico's central bank decided to lift rates in response to the peso weakness (which may translate into higher inflation). The move may be in anticipation of the Fed's hike.
Source: Reuters; Read full article
1. Turning to Canada, the nation's government bond yields continue to drift lower.
2. Macquarie points out that Canada's wage growth has stalled and part-time employment has dominated job creation. These facts make it even more difficult to justify the incredible gains in some property markets.
Source: Macquarie, @NickatFP, @joshdigga
Source: Macquarie, @NickatFP, @joshdigga
1. In the United States, the media was all over the pending home sales index experiencing its "third straight drop".
Source: CNBC; Read full article
However, that result from the National Association of Realtors (NAR) is simply wrong. As everyone knows, home sales in the US are extremely seasonal, and NAR does a terrible job in their "seasonal adjustments" - often making the month-to-month movements meaningless. Instead, the association should learn from the energy industry which constantly deals with seasonal patterns.
When comparing the index with the previous two years without the silly seasonal adjustments, US pending home sales are actually doing well for this time of the year.
2. US broad money supply growth remains above 7.5% per year as credit expansion continues.
1. Next, we look at the funding markets where financial commercial paper outstanding continues to decline ahead of the money market fund regulation.
2. The EUR/USD cross-currency basis is widening again, suggesting that dollar funding is tightening for European banks.
3. Similarly, the overnight dollar funding for Japanese banks is becoming expensive as we get into quarter-end.
Source: Bloomberg
3. Dollar repo rates continue to climb, with the MBS repo rate nearing 100bp. As a reminder, the RRP is paying 25bp.
Source: DTCC
4. As a result of this elevated demand for the Fed's RRP (at the expense of the private repo market), US monetary base declined materially (the RRP is absorbing reserves).
1. Next, we look at the energy markets, where analysts continue to question the OPEC's supposed production cuts agreement.
Source: The Washington Post; Read full article
2. Nonetheless, crude oil continued to rally. European Gasoil popped 7%, catching up with the crude oil rally.
3. The markets are yet to fully absorb the fact that US oil producers have been rapidly adjusting to the low price environment. The so-called "mega fracking" is one of those developments.
Source: Financial Sense, h/t Michael; Read full article
3. Related to the above, US production efficiency continues to improve.
Source: EIA
4. Some readers have asked about the situation with the Drilled Uncompleted Wells (DUC) in the US. Here is a bit of background.
Source: RBN Energy, h/t Leo; Read full article
1. In other commodity markets, nickel continues to rally. This comes on the back of the Philippines saying that some three-quarters of its mines failed a major audit. More on the topic in the link below.
2. Lead continued to rally as well - see the overview below.
Source: News.com.au; Read full article
3. Time to switch to tea?
4. Cocoa futures hit new lows for the year on potential global surplus and improving weather conditions (more rain) in West Africa.
5. Gold and yen increasingly trade together as safe-haven assets.
Source: BofAML, @NickatFP, @joshdigga
1. In the equity markets, US pharmaceuticals took a big hit on Thursday, driven in part by a massive drop in ITCI (second chart below).
Source: Google; Further Reading
2. The S&P 500 put skew remains quite steep.
Source: BofAML, @NickatFP, @joshdigga
1. In global developments, the OECD warns that weak trade and financial distortions damage global growth prospects.
Source: OECD, @joshdigga
2. The "world" real rate (the average yield on G7 inflation-linked bonds) is hitting new lows. Here are the drivers.
Source: @TheEconomist, @Tmp_Research; Read full article
1. Turning to Food for Thought, American's haven't changed their views on immigrants much over the past couple of years.
Source: @DrewAltman, @WSJThinkTank, @Tmp_Research; Read full article
2. The breakdown of US foreign aid.
Source: The Washington Post, @paul1kirby; Read full article
3. The largest US companies in 2006 and now.
Source: @business, @Tmp_Research; Read full article
4. Declining support for the death penalty in the US.
Source: @FactTank; Read full article
5. US Google searches for "register to vote" vs. the city's Latino population.
Source: The New York Times, @Nate_Cohn, Read full article
Have a great weekend!
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