Greetings,

1. We begin with the Eurozone where, as many economists had expected, the ECB did not change its policy. The central bank downplayed the impact of Brexit, which is projected to hit Germany the most. Draghi suggested that the EMU governments should step up efforts to boost growth, in effect acknowledging that the ECB has done all it can (for now).

Source: WSJ

2. Indeed, German economy may be hitting a soft patch (discussed yesterday) as investment outlook weakens.

Source: Deutsche Bank, ‏@joshdigga 

3. Nonetheless, the euro area shows signs of "green shoots" as retail and auto sales recover sharply after the Eurozone debt crisis.

Source: Credit Suisse, ‏@joshdigga 

4. Here are the ECB staff's GDP and HICP inflation projections.

Source: Natixis, ‏@joshdigga 

Source: Natixis, ‏@joshdigga 

5. Below is an overview of the ECB's corporate bond buying - by country, industry, maturity, and rating (from UBS).

 

 

 

6. SocGen suggests that as disposable incomes decline in the Eurozone, the area residents will dip into savings. That's why the bank projects the savings ratio falling over the next few years.

Source: SocGen, ‏@joshdigga

7. Markets didn't like this inaction from the ECB. Equities and bonds sold off - here is the German 5yr government bond yield.

8. Next chart shows the French yield curve steepening on the ECB inaction (same for other Eurozone curves).

Source: Bloomberg

9. Treasuries also sold off on the (lack of) news from Mario Draghi, erasing the gains caused by the terrible ISM Non-manufacturing report. 

1. Continuing with Europe, two Czech central bankers reaffirmed that the CNB will exit the CZK (Czech Koruna) cap against the euro around the middle of 2017. Unlike the Swiss National Bank, the Czech National Bank is giving markets some warning. The 2yr government bond yield is declining sharply in response to the news (a stronger Czech koruna - after the "de-pegging" - will be deflationary).

Source: Investing.com

2. Poland's 2yr government bond yield rose again.

1. Turning to emerging markets, Russian bond yields continue to drift lower. The 10yr is now below 8%.

2. The Philippine peso is under pressure again - the markets are uneasy about Rodrigo Duterte.

3. Thailand's stock market took a hit, supposedly due to "heavy domestic fund selling". Perhaps.

4. Here is Argentina's stock market (in peso) - a spectacular rally: 41% year-to-date (21% in USD).

5. Brazil's FDI has remained remarkably stable.

Source: SocGen, ‏@joshdigga

6. Egypt's inflation continues to rise. This type of trend, if it persists, could result in further social unrest.

7. Turkey’s industrial production dropped sharply after the failed coup attempt.

Further Reading

8. China's imports surprised to the upside. This result suggests stabilization in domestic demand.

9. China's consumer inflation came in below consensus.

10. SocGen suggests that China's private investment is "crowded out" by the fiscal stimulus. Others would say that the state had to step in because of the declining private investment.

Source: SocGen, ‏@joshdigga

11. North Korea apparently conducted its fifth nuclear test. This event was followed by a bit of a selloff in the KOSPI.

Source: Reuters

12. South Korean exports posted the first one-year rise in 20 months in August (the chart below shows the 3-month moving average).

Source: BofAML, ‏@joshdigga

The WSJ points out that the BoJ will increasingly face the lack of assets to buy, limiting its options.

Source: WSJ, h/t  ‏@pdacosta

1. Switching to Canada, the nation's government bonds sold off on the ECB inaction as well as rising oil prices.

2. Canadian capacity utilization declined to the lowest level since 2010.

3. The nation's equity markets are once again benefiting from foreign inflows.

Source: BMO, ‏@joshdigga

1. In the United States, revolving consumer credit growth increased as shoppers embrace plastic again (see bottom chart).

Source: @NickatFP

2. Separately, here is the US consumer credit (excluding mortgages) as a percentage of the GDP over the past 70 years.

3. Gundlach uses the recent jump in the ECRI (index of leading indicators) to suggest that we are about to see more inflation in the US. Perhaps.

Source:  ‏@jessefelder

4. Interestingly, Goldman agrees with the above assessment, forecasting a much steeper rise in the Fed Funds rate as well as treasury yields.

Source: Goldman Sachs, ‏@joshdigga

Source: Goldman Sachs, ‏@joshdigga

1. Now on to the energy markets where we saw a massive weekly draw on US crude oil inventories. Crude oil jumped sharply in response.

 

 

2. US gasoline inventories also fell more than expected.

3. A part of this huge draw in crude oil was the decline in imports (below). The hurricane along the Eastern seaboard (Hermine) had impacted many of the activities in the energy sector, distorting some of the figures.

4. US crude oil production seems to have stabilized (for now).

Source: EIA

1. In the equity markets, we see tremendous outperformance of US dividend-focused shares over the past year.

Source: Ycharts.com

2. The next chart shows long-term dividend expectations for Europe and the US.

Source: Goldman Sachs, ‏@joshdigga

3. European firms' 10-year moving average of profit growth dropped below zero even in nominal terms.

Source: Goldman Sachs, ‏@joshdigga

4. As we saw yesterday, US small caps have outperformed sharply this year. However, leverage for small caps remains elevated.

Source: Barclays, ‏@joshdigga

5. Globally, we see corporate re-leveraging which this time is not accompanied by growth in Capex.

Source: Barclays, ‏@joshdigga

Finally, Bitcoin continues to recover from the Bitfinex hack.

Turning to Food for Thought, we have 5 items today:

1. The number of deaths from HIV almost halved in the last ten years.

Source: ourworldindata.org/hiv-aids/, @MaxCRoser,  ‏@Tmp_Research

2.  Sentiment among millennials has diverged sharply from that of older Americans.

Source: @chartoftheday

3. According to FiveThirtyEight, "men outnumbered women 2-to-1 in the 2015 movies. What gives?"

Source: @FiveThirtyEight, @Tmp_Research

4. President Putin’s voter approval index and Russia's real household disposable income.

Source: HSBC, ‏@joshdigga

5. According to Vox, "the US uninsured rate has fallen to a new low – but not very dramatically for poorer Americans."

Source: @voxdotcom, @Tmp_Research

Have a great weekend!