Greetings,

1. We begin with the United States where house price inflation eased somewhat but remains above 5% per year. As discussed before, with wages growing at roughly half that rate, housing appreciation needs to slow further to be on a sustainable path.

2. US new home sales rose to an 8-year high in June, materially beating consensus.

New home sales growth was uneven, with a big spike occurring in the $400k-$500k price range.

3. Shares of US homebuilders outperformed over the past couple of weeks on tight housing inventories (as discussed yesterday).

Source: Ycharts.com

4. The US services PMI from Markit was disappointing - here is a summary.

Source: @MarkitEconomics

5. The Conference Board US consumer confidence index was virtually unchanged from the prior month, with no visible impact from Brexit.

6. US consumer labor market sentiment improved in July. A rate hike could come as early as September if the Fed sees Brexit having only a limited impact on the US economy.

Source:  ‏@jbjakobsen

7. The Philly Fed non-manufacturing survey shows a pickup in new orders while hiring moderates.

 

 

8. The Richmond Fed manufacturing report also shows a pickup in new orders and much tighter inventories.

Source: ‏Richmond Fed ​

9. Broadly, while this US recovery is extremely slow, it has also been a relatively long one. As a result, the current GDP trajectory is now ahead of the 2001 recovery, which by this time was already in contraction mode.

Source: @Alan_Krueger

1. Switching to the Eurozone, the ECB (Eurosystem) consolidated balance sheet hits a new record (almost €3.3 trillion).

Source: ECB

Related to the above, the Eurozone monetary base now exceeds €2 trillion. A great deal of these balances is held at negative rates in the ECB Deposit Facility.

Source: ECB

2. Belgian business sentiment exceeds estimates. So far the Eurozone shows little sign of a broad negative impact from Brexit.

3. Negative yields in the Eurozone are increasingly showing up in corporate bonds. Some investment grade bonds are even yielding less than -40bp (the ECB's cutoff rate).

In some ways, this could be viewed as "helicopter money" because by buying corporate debt and pushing yields into negative territory the central bank allows firms to make money in their interest expense account.

Source:  ‏@jsblokland, BofAML

 

4. French labor markets remain weak as we see another increase in the number of job seekers in June.

Source: Natixis, @joshdigga

1. Now on to the UK, where the British pound implied volatility continues to decline. The market is increasingly discounting the risk of a material pound depreciation from current levels.

 

2. UK mortgage approvals fell to the lowest level in 15 months in June. The July figure will be key in determining how badly the market has been hit.

Source: BBA

3. According to the FT,  markets now price in a 97% probability that the BoE will cut rates in August. In a way, the market is forcing Mark Carney's hand (not cutting could severely tighten financial conditions).

Source: ‏@acemaxx, @FastFT

4. Here is the UK GDP forecast according to the Bloomberg survey of economists.

Source: ‏@business 

Switching to Japan, UBS says that "falling market-based inflation expectations in Japan signal a need for [more] quantitative easing."

Source: UBS

 

2. According to UBS, however, it is quite possible that the BoJ may delay further easing until September. Such a delay could create a bit of a panic in the currency markets, sending yen soaring and igniting "risk-off" sentiment globally.

Source: UBS

3. Whatever the BoJ ends up doing, we already know that Tokyo is boosting fiscal stimulus.

Source: Reuters

1.  Turning to emerging markets, Nigeria's central bank unexpectedly raised the benchmark rate to 14% to defend the flagging currency (discussed yesterday). Will it work?

 

 

 

2. Brazil posted a greater-than-expected external deficit as a result of a stronger real.

3. As discussed earlier this week, Venezuelan gross international reserves keep declining.

Source: Credit Suisse, @joshdigga

4. Colombian terms of trade have deteriorated on weak commodity prices.

Source: Credit Suisse, @joshdigga

5. Ecuadorian labor market has worsened since the initial drop in oil prices in 2014.

Source: Credit Suisse, @joshdigga

 

6. Credit expansion in Mexico (discussed yesterday) has been fairly broad and had a significant impact on economic activity.

Source: Credit Suisse, @joshdigga

7. The Kazakh tenge declined by the largest amount this year on softer oil prices (the chart shows one US dollar buying more tenge).

8. China's disposable income growth has deteriorated faster than the GDP growth. Will this trend cap retail sales going forward?

Source: ‏@MarcusEconomics

1. Next, we look at commodities where wheat futures were down over 3% on record harvest expectations.

Source: barchart.com

2. Orange juice futures are marching higher as the citrus greening disease damages Florida crops.

Source: barchart.com

3. The NYMEX crude oil is firmly below $43/bbl.

Source: barchart.com

Part of the reason for weaker prices is that oil demand growth this quarter is running significantly slower than during Q3 of last year. Elevated crude (and US gasoline) inventories and rising rig count are not helping either.

Source: ‏Barclays, @tracyalloway

1. In the treasury market, the "appetite for U.S. debt is weakest since 2009" (Bloomberg). Here is the 5-yr auction. (By the way, as discussed before, US equities are highly sensitive to rates at current valuations).

Source: ‏@markets,  @elizahannon

2. Treasury term premium (the extra yield investors demand for holding longer-maturity bonds) remains near historic lows.

Source: ‏@markets,  @elizahannon

3. Here is an interesting observation: treasury term premium tends to be highly (inversely) correlated to gold prices. Investors use both long-term treasuries and gold as a hedge against "risky" portfolios.

Source:  ‏@auaurelija

1. In credit, US corporate spreads are at 1-year lows (in the chart below: IG = left axis, HY = right axis).

2. Back in February, we saw a massive selloff in CoCo's (contingent convertible bonds) triggered by fears around Deutsche Bank. Now the CoCo total return index is hitting new highs as investors chase yield.

Source: @bespokeinvest

In the funding markets, US LIBOR continues to rise, driven by the impending money fund regulation.

Source: stockcharts.com

Here is the US LIBOR curve steepening over the past month.

Source: ICE

US swap spreads are widening (mostly in the short-end) in response to higher LIBOR rates.

Source: UBS

1. In US equity markets, some metals firms are experiencing sharp rallies. US Steel was up 8% on Tuesday (up nearly 200% year-to-date!) while AK Steel (AKS) jumped 14% on the day. As a result, the S&P Metals & Mining Index was up 5.5% on Tuesday. 

Source: barchart.com

Source: barchart.com

Source: barchart.com

2. Potentially related to the above, Caterpillar (CAT), whose global sales and profit slumped less than expected, was up sharply.

Source: Google

3. Apple (AAPL) shares spiked after hours as the firm sold more iPhones than expected. The company's results sent Nasdaq and even S&P 500 futures higher after hours.

Source: Google

 

4. One firm that disappointed - again - was Twitter. There doesn't seem to be any US growth. Is this it for Twitter (TWTR)  in the US?

Source: Google

Source: @carlquintanilla, @sarahfrier

Finally, we often hear financial planners talk about an 8% growth expectation in US equities (because that has been the trend historically). Future expectations, however, should be tapered down in the current environment - materially.

Source: @MarathonWealth

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

1. While US crime rates have broadly been declining, homicides are up in a number of cities.

Source: @PostGraphics

2. Capital gains tax rate by state.

Source:‏ ‏@taxfoundation

3. According to the WSJ, "self-driving cars are forecast to cut accidents [which already have been declining for years] by 80% by 2040". 

Source: ‏@NickTimiraos

4. Apparently "only about 15% of U.S. jobs combine strong salaries with healthy wage gains" (WSJ).

Source:  ‏@WSJecon

5. Donald Trump's "America First" campaign is apparently not very popular outside the United States - except in Russia.

Source: ‏@ianbremmer