The Daily Shot 10.11.16

By SoberLook


We begin with the US where the September private payrolls came in roughly in line with expectations (167k vs. 170k expected). Here are several other developments in the nation’s labor markets.

United States

1. Labor force participation continues to stabilize.

Moreover, the number of unemployed Americans dropping out of the workforce has declined to pre-recession levels.

2. The declines in underemployment, however, have stalled.

3. The manufacturing sector continues to shed jobs.

4. Wage growth, especially for non-supervisory employees, is improving.

Some of this improvement is coming from the construction sector, where homebuilders increasingly complain about troubles recruiting skilled workers.

Continue reading at TalkMarkets →

The Daily Shot 9.30.16

By SoberLook


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

Continue reading at TalkMarkets →

The Daily Shot 9.28.16

By SoberLook


1. We begin with emerging markets where the declines in Argentina’s economic activity have accelerated. The timing of this turn of events is quite unfortunate because the new government has a limited “honeymoon” window to enact the necessary reforms.

On the other hand, Argentina’s trade balance seems to have stabilized – in part as a result of the peso weakness.

2. We see more “green shoots” in Brazil where consumer confidence, though extremely weak, is gradually recovering. There are more signs that Brazil’s inflationary pressures are easing, which should result in rate cuts by the nation’s central bank.

Continue reading at TalkMarkets →

The Daily Shot 9.23.16

By SoberLook


1. We begin with the energy markets where US crude oil inventories unexpectedly declined, sending prices higher. The Fed’s decision to leave rates unchanged gave crude an additional boost.

2. The next chart shows US oil inventories in terms of barrels as well as days of supply.

3. US crude oil production remains stable – for now. Are the current prices, including forward prices (given the steep futures curve), sufficiently high to sustain production at these levels?

4. Speaking of oil production, Russia’s output growth has stalled.

Source: HSBC, @joshdigga

5. US gasoline supplies are now below last year’s levels in terms of days of supply, which is also contributing to bullish sentiment in oil.

6. Gasoline demand is elevated for this time of the year – typically it should be falling off faster than it has.

Continue reading at TalkMarkets →

The Daily Shot 9.22.16

By SoberLook


We begin with the United States where, as expected, the Federal Reserve has left rates unchanged. The divided FOMC, however, hinted that a rate hike is coming soon.

Source: FRB

The futures-implied probability of a rate hike by year-end is now above 60%.

Source: CME

One of the key results from the FOMC meeting – something that the media doesn’t seem to cover much – is another downgrade by the Fed of the US long-term growth. The central bank now believes (on average) that the United States economy won’t grow faster than 2% in years to come. The FOMC has been steadily downgrading its expectation for long-term growth over the past five years – from 2.65% to 1.85%.

As a result of the above, in just over a year, the Fed has downgraded the US long-run fed funds rate from 3.8% to 2.9%.

The FOMC has also been consistently downgrading the fed funds rate projections for the next couple of years.

Source: Bloomberg

In other US developments, markets remain convinced that inflation will stay benign in years to come.

Source: Macquarie, @joshdigga

According to the Mortgage Bankers Association, growth in US mortgage activity for home purchases, while still positive, has been declining.

Now let’s turn to the funding markets, where US dollar LIBOR continues to grind higher.

Continue reading at TalkMarkets →

The Daily Shot 9.19.16

By SoberLook

We begin with the United States where consumer inflation surprised to the upside.

1. The chart below shows US core CPI which came in a bit above consensus.

2. Other inflation measures tracked closely by the Fed, the so-called “sticky CPI” and the 16% Trimmed-Mean CPI moved higher as well.

3. While it’s easy to get excited about these increases – leading to the conclusion that the Fed must raise rates soon, some caution is required here. The bulk of the increase came from the medical care component of the CPI, and it’s not at all clear how rate hikes would “cure” this problem.

4. The other component of inflation that remains robust is “shelter CPI.” The chart below shows how housing costs compare with the overall core CPI over the past ten years. Some suggest that a rate hike is required to cool housing costs. However, most of these increases come from rental expenses, and there is little evidence that higher rates reduce rents. In fact, higher financing costs could exacerbate the shortages of rental housing by lowering new construction activity.

5. The ex-shelter CPI is basically flat (chart below) and without the medical care price jump the US is in deflation.

Continue reading at TalkMarkets →

The Daily Shot 9.12.16

By SoberLook


Let’s begin with Friday’s markets where the volatility has finally returned. A confluence of events including the ECB’s inaction, some of the Fed officials’ hawkish comments, Jeffrey Gundlach turning bearish on bonds and technical factors sent markets into a sharp correction. Machine-driven activity accelerated the selloff. The equity markets were particularly spooked by the sharp correction in global bonds.

1. The Treasury curve steepened as longer-dated yields jumped.

2. The situation was even more severe for Europe. French and Italian 30y government bond yields are shown below.


3. Bunds had a rough couple of days following the ECB’s decision to stay pat.


Source: McElligott (RBC)

4. Similar to the moves in the Eurozone, the 30yr gilts yield was up 12.5bp (3.6% drop in price).

1. In the equity markets, the S&P500 futures closed 2.6% lower on the day. Some had been pointing to the “triple top” technical formation.

The  selloff continues in the early Monday morning hours.


2. Citi has recently pointed out that global equity markets are increasingly macro-driven, and Friday’s events made that quite clear.

Continue reading at TalkMarkets →

The Daily Shot, 9.9.16

By SoberLook

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).

Continue reading at TalkMarkets →

Just the Facts

By Doug Noland

Credit Bubble Bulletin:  Just the Facts

The S&P500 added 0.5% (up 6.7% y-t-d), and the Dow increased 0.5% (up 6.1%). The Utilities gained 0.9% (up 14.7%). The Banks jumped 2.2% (down 0.7%), and the Broker/Dealers rose 2.0% (down 3.2%). The Transports advanced 1.6% (up 5.8%). The broader market was strong. The S&P 400 Midcaps gained 1.2% (up 12.9%), and the small cap Russell 2000 rose 1.1% (up 10.2%). The Nasdaq100 added 0.3% (up 4.5%), and the Morgan Stanley High Tech index increased 0.4% (up 9.7%). The Semiconductors gained 0.7% (up 21.6%). The Biotechs declined 1.4% (down 14.8%). With bullion recovering $8, the HUI gold index increased 0.7% (up 115%).

Three-month Treasury bill rates ended the week at 32 bps. Two-year government yields dropped five bps to 0.79% (down 26bps y-t-d). Five-year T-note yields fell four bps to 1.19% (down 56bps). Ten-year Treasury yields dipped three bps to 1.60% (down 65bps). Long bond yields were unchanged at 2.28% (down 74bps).

Greek 10-year yields rose six bps to 7.93% (up 61bps y-t-d). Ten-year Portuguese yields were unchanged at 3.01% (up 49bps). Italian 10-year yields gained four bps to 1.17% (down 42bps). Spain’s 10-year yield jumped eight bps to 1.02% (down 75bps). German bund yields increased two bps to negative 0.05% (down 67bps). French yields added two bps to 0.19% (down 80bps). The French to German 10-year bond spread was unchanged at 24 bps. U.K. 10-year gilt yields surged 16 bps to 0.72% (down 124bps). U.K.’s FTSE equities index gained 0.8% (up 10.4%).

Japan’s Nikkei 225 equities index rallied 3.5% (down 11.1% y-t-d). Japanese 10-year “JGB” yields rose four bps to an almost six-month high negative 0.04% (down 30bps y-t-d). The German DAX equities index rose 0.9% (down 1%). Spain’s IBEX 35 equities index jumped 2.9% (down 6.7%). Italy’s FTSE MIB index rose 2.0% (down 20%). EM equities were mostly higher. Brazil’s Bovespa index jumped 3.3% (up 38%). Mexico’s Bolsa gained 0.9% (up 11%). South Korea’s Kospi was unchanged (up 3.9%). India’s Sensex equities jumped 2.7% (up 9.2%). China’s Shanghai Exchange was little changed (down 13.3%). Turkey’s Borsa Istanbul National 100 index slipped 0.3% (up 7.2%). Russia’s MICEX equities index increased 0.5% (up 13.8%).

Junk bond mutual funds saw outflows of $387 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates rose three bps to 3.46% (down 43bps y-o-y). Fifteen-year rates gained three bps to 2.77% (down 32bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates unchanged at 3.57% (down 48bps).

Federal Reserve Credit last week dropped $19.5bn to $4.418 TN. Over the past year, Fed Credit declined $19.4bn. Fed Credit inflated $1.607 TN, or 58%, over the past 199 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt sank $18.5bn last week to a two-year low $3.188 TN. “Custody holdings” were down $158bn y-o-y, or 4.7%.

M2 (narrow) “money” supply last week jumped $27.7bn, surpassing $13 TN for the first time ($13.021 TN). “Narrow money” expanded $871bn, or 7.2%, over the past year. For the week, Currency increased $1.4bn. Total Checkable Deposits gained $24.5bn, and Savings Deposits rose $12.4bn. Small Time Deposits were little changed. Retail Money Funds declined $10.9bn.

Total money market fund assets fell $10.5bn to $2.724 TN. Money Funds rose $46bn y-o-y (1.7%).

Total Commercial Paper sank $22.6bn to an almost one-year low $981bn. CP declined $51bn y-o-y, or 4.9%.

Currency Watch:

September 1 – Bloomberg (Robin Ganguly and Justina Lee): “China’s yuan has doubled its share of global currency trading in the three years through April 2016, according to the latest triennial survey conducted by the Bank for International Settlements. The yuan’s average daily turnover rose to $202 billion in April from $120 billion in the same month of 2013, boosting its ratio of global foreign-exchange trading to 4% from the previous 2%… That puts the currency in eighth place overall. Dollar-yuan became the sixth-most traded currency pair, advancing from ninth place in 2013, BIS said, while the yuan overtook the Mexican peso as the most actively traded emerging-market currency.”

Continue reading Just the Facts

The Daily Shot, 9.1.16

By SoberLook


Please note that the next Daily Shot will come out on Tuesday, September 6th.

1. We begin with emerging markets where Nigeria has finally released its Q2 economic figures. Some suggest that the delay was related to John Kerry’s visit. Perhaps. Here is the quarterly GDP.

Nigeria’s employment situation has worsened as payrolls fell while the unemployment rate rose.

Nigeria’s foreign reserves continue to deteriorate.

Moreover, the nation’s food inflation is accelerating due to weak currency.

Domestic bond yields are rising again on the back of the above reports.


2. Other oil producing nations are experiencing significant economic deterioration as well. Here is Saudi Arabia’s GDP – note the non-oil component.

Source: Capital Economics, @elenaholodny (Business Insider)

3. South Africa’s sovereign CDS spread is grinding higher.

It looks as though South Africa’s private sector is experiencing a credit crunch of sorts. Credit as well as the broad money supply growth slowed more than expected.

Continue reading at TalkMarkets →