The Daily Shot And Data - May 17, 2016

By Walter Kurtz

Tuesday, May 17, 2016 11:54 AM EDT

Greetings,

1. Once again, let's start with the United States where the New York area (Empire) manufacturing activity fell back into contraction mode

The survey showed CAPEX expectations falling sharply. If we see similar results from other Fed regions, the manufacturing recovery in the US may take significantly longer than some have been expecting.

2. US homebuilder optimism remained unchanged in the latest report but the regional breakdown shows the Northeast sentiment deteriorating (while stable elsewhere).

Source: ‏@TheStalwart

3. The Atlanta Fed wage growth tracker is approaching 3.5% (year-over-year growth). Are we finally seeing evidence of improving wage growth?

Source: Atlanta Fed

4. Related to the above, wage growth in the US has been the fastest for the lowest paid workers in 2015. Here is a summary from Goldman Sachs.

Source: Goldman Sachs

5. We often discuss the Atlanta Fed GDP tracker called GDPNow. How accurate is it relative to economists' forecasts? Apparently GDPNow is no worse than the forecasters' survey average.

Source: @MarathonWealth, @BobBrinker

6. The treasury curve (10y - 2y) is now the flattest it has been since 2007. Markets are discounting improvements in the nation's growth rate.

7. Demand for the Fed's RRP (reverse repo program - paying 25bp) remains weak, as the private sector repo rates stay above 40bp.

Source: DTCC

1. Turning to the Eurozone, Moody’s upgraded Ireland’s sovereign debt, projecting a better-than-expected economic outlook for the nation. Bond yields fell in response.

Source: @fastFT

2. The ECB's monetary transmission, while having taken a while to materialize, seems to be working now as debt cost for the "real economy" is falling.

Source: Credit Suisse, @joshdigga

3. Greek 10y government debt yield is back below 7.5%. Amazing.

4. As LIBOR in the Eurozone fell below zero, some of the higher quality borrowers potentially end up with a negative interest rate. Should the lender pay the borrower in this environment?

Source: ‏@NickTimiraos

1. Elsewhere in Europe, the chart below shows the labor force participation rate by country.

Source: Morgan Stanley, @joshdigga

2. Britain's EU Referendum polls show dead heat between the "yes" and the "no" vote.

Source: @chris1reuters

However, the latest Brexit odds in the betting markets tell a different story.

Source: @PredictWise

3. Poland is struggling with tightening credit conditions. Moreover, foreigners have been dumping Polish government bonds. Poland avoided a Moody's rating downgrade (for now) but the rating agency cut the nation's credit outlook.

Source: Morgan Stanley, @joshdigga

The latest BofA Merrill Lynch investor survey shows a significant decline in Brexit concerns. The risk of "quantitative failure" on the other hand moves higher.

Source: BofAML, ‏@Callum_Thomas

Long US dollar positions are increasingly viewed as a "crowded trade".

Source: BofAML, ‏@Callum_Thomas

Japan's machine tool orders (YoY) fell more than expected. This indicator may no longer be as useful because Japan's industrial firms now buy a great deal of equipment elsewhere.

Japan's monetary base continues to expand with QE.

Source: BoJ

1. Next, we shift to China where the PBoC liquidity injections continue to rise. This trend could be thought of as a "sterilized QE."

Source: Citi, ‏@joshdigga

2. Are China's corporates having some trouble selling bonds?

Source: Citi, ‏@joshdigga

1. In other emerging markets, India's wholesale deflation finally ended.

2. Is Brazil's business confidence stabilizing with Dilma's exit?

3. Builders in Sao Paulo are saying that the pressure on the housing market is starting to ease. Perhaps.

Source: @business

4. Russia's GDP growth surprised to the upside. While the economy shrank on a year-over-year basis, the decline was smaller than expected. The central bank is on hold for now.

5. Nigeria's CPI rate continues to rise, primarily as a result of a weaker currency.

6. The South African rand got pummeled again on Monday in response to the finance minister arrest story. The situation remains fluid.

Source: Investing.com

Switching to the energy markets, WTI was up over 3% on the day.

Source: @barchart

One of the reasons for the rally was more unrest in Nigeria where a little-known group has been blowing up pipelines.

Source: BBC

Another reason for the rally is a forecast revision from Goldman Sachs. The research team there now projects much tighter near-term supplies of global crude oil.

Source: Goldman Sachs

Below is Goldman's summary of oil producer behavior at different price points.

Source: Goldman Sachs

Producers have sharply increased their hedging of crude oil, with new hedging taking place near $50/bbl. This suggests that $50/bbl is sufficiently profitable to boost production again.

Source: Goldman Sachs

According to Bloomberg, China's crude oil production fell the most in 4 years.

Source: @JavierBlas2, @business

Separately, is crude oil (CLM16) decoupling from equities (ESM16)?

Source: @barchart

In credit markets, SandRidge Energy filed for bankruptcy, making it the fifth energy firm to do so in five days.

Source: Google

Source: Deutsche Bank, ‏@joshdigga

In other commodities, coffee futures (shown here over the past week) rose sharply.

Source: @barchart

Lumber futures continue to climb. More on this later.

Source: @barchart

1. Finally, let's look at the equity markets where transport shares are still underperforming.

Source: Ycharts.com

2. Investors remain under-allocated to US equities, suggesting there may be room for more upside.

Source: BofAML, ‏@joshdigga

3. Related to the above, Merrill Lynch's equity client outflows are at the worst levels since 2008.

Source: BofAML, ‏@joshdigga

4. Berkshire took a $1 billion position in Apple. However, according to the WSJ, this is not Buffett's trade. It was instead executed by his ex-hedge fund proteges.