The Daily Shot And Data - March 28, 2016

By Walter Kurtz

Monday, March 28, 2016 8:06 AM EDT

We begin with a few updates on the energy markers.

1. US miles driven reaches another record as Americans hit the road.

This has resulted in elevated gasoline demand which remains firmly above the 5-year range.

Source: Credit Suisse

Gasoline expenses are quite low as a share of disposable income and should continue to add to the demand.

Source: Credit Suisse

2. The amount of global crude oil sitting in floating storage remains elevated. This is expected to pressure Brent prices.

Source: ‏Deutsche Bank

3. Productivity improvements at US oil firms have been impressive. As the number of rigs continues to fall, the number of wells per rig increases.

Source: The Federal Reserve, h/t @kkalev

4. Related to the above, energy CAPEX is expected to fall further in 2016. At some point, the US oil production declines should accelerate.

Source: @standardpoors

Turning to the US economy, the latest service sector PMI (from Markit) is not encouraging. Here is the commentary.

Source: Markit

As discussed before, some of the early projections for US Q1 GDP growth have been too optimistic. The Atlanta Fed Q1 GDP tracker is getting back to reality - and is now more consistent with the PMI report above.

Source: @AtlantaFed

Here are several other developments in the US.

1. Without the fancy seasonal adjustments, the US factory orders trend looks terrible.

2. Corporate loans on banks' balance sheets in the US are still growing at nearly 11% per year. There is no evidence of a significant bank tightening in the corporate credit markets.

3. Banks are ramping up home equity lines for US consumers. As the second chart below shows however, the overall usage (the drawn amount) of home equity lines is still declining.

Source: @NickatFP, @WSJGraphics, h/t Jake

4. US federal government debt to GDP ratio hits a new high. The nominal GDP growth is not keeping up with the US budget deficit (the US is not yet "growing out of" its central government debt).

1. Immigration is currently the number one concern in the UK.

Source: ‏Goldman Sachs

The rising migration fears are boosting the EU referendum uncertainty and pressuring the pound.

Source: ‏Goldman Sachs

By the way, it's worth noting that the British Commonwealth economy has been outperforming that of the EU.

Also, here is the UK's share of the EU financial markets.

Source: @paul1kirby, @blackrock

Separately, UK corporate pensions now seem to be more underfunded than those in the US.

Source: JPMorgan, h/t Josh

UK retail sales growth remains robust.

Elsewhere in Europe, we see the French ranks of the unemployed hit a new record. France has to focus on reforming its labor markets in spite of the opposition.

In Japan, we see government bond volatility spiking after the BOJ's negative rate announcement.

Source: ‏ @SoberLook, h/t Jake

Turning to Emerging markets, here are a few developments.

1. China's domestic government bond yields have declined sharply in the short end. Is more PBoC stimulus being priced in?

Source: ‏ Nomura

2. Taiwan again cut its key rate amid a weak economy and the easing by other central banks. Staying in the currency wars is a must ...

Turkey cut the top end of its rate "corridor" as the central bank's governor is preparing to step down. Turkish central bank is clearly bowing to political pressures to ease in spite of the weak currency.

Next, we have some observations on the equity markets.

1. European payout ratios (percent of earnings that gets paid out as dividend) are quite elevated.

Source: Morgan Stanley

2. The Dow is testing a post-2015 resistance level.

Source: @JLyonsFundMgmt, h/t Jake

3. Large cap value shares in the US have outperformed growth equities this year.

Source: Ycharts.com

4. Banking shares continue to significantly lag the broader market.

Source: Ycharts.com

5. Speaking of bank shares, here is Credit Suisse. As the firm announces a second quarterly loss and deep restructuring looms, the resumes out of CS are hitting the street in droves. This must be quite frustrating for the new CEO.

Source:‏ Google

Source:‏ The FT

In other market developments, global deal volume is down severely this year.

Source: JPMorgan, h/t Josh

The primary dealers' holdings of long-dated treasuries hit a record recently. A great deal of this is off-the-run paper which the dealers are hedging mostly with futures and with on-the-run treasuries where possible. This is one of the reasons for the increased numbers of on-the-run treasuries going on special and delivery fails rising.

Source: Deutsche Bank

Finally, we have a couple of updates on commodities.

1. It was a good Easter, with egg prices now way below the typical levels for this time of the year.

Source: USDA

2. Australia's beef sales to China jump to record levels.

Source: @business

Before going to Food for Thought, we have a guest post from Rob Koyfman, covering several macro themes.

Since the February 11th low, many investors went through the first three stages of grief: denial, anger and depression. Now many investors are stuck in depression and waiting for the market to collapse again. It’s unlikely to happen in the short term. Economic data is getting better and will likely continue to improve, financial conditions are easing and investor positioning is neutral. That doesn’t mean everything is rosy. China tail risks have not been resolved. And it’s unclear whether commodity prices have bottomed (they probably have or are very close). Oil is still the most important indicator to monitor because of its relationship to high yield. The bottom line is that the most likely path is a consolidation over the next 2-3 weeks followed up a move higher in risk assets to the top of the range.

Health Care underperformed in a down market and the trend of the relative performance is down. The sector will likely continue to underperform as election season rhetoric targets drug prices.

Staples has underperformed Health Care since 2012 but the trend looks like it has reversed.

The biggest driver of risk currently is oil prices because lower oil prices will result in more debt defaults. If oil prices don’t make new lows, this would be positive for risk assets. Oil price in the range of $30-$40 would be an ideal scenario for economies.

The recent strong performance of Industrials suggests that ISM will rebound over the next several months. This will likely cause 2-year Treasury yields to move higher and USD to strengthen. Next ISM report on Friday.

Japan equities and Yen trade in sync. Weaker Yen has helped Japan equities outperform.

The Yen appears to strengthen going forward especially vs. the Euro. Negative for Japan equities.

Japan is a short after it broke a multi year uptrend and probably a head-and-shoulders. The bear case is that Abenomics is not working and Kuroda might resign in the next year abandoning the printing press. DXJ (Japan hedged ETF) looks like a good short after the recent bounce. DXJ above 48 is a reasonable stop loss for the short.