The Daily Shot And Data - May 20, 2016

By Walter Kurtz

Friday, May 20, 2016 10:00 AM EDT

Greetings,

Let's start with the Eurozone. The latest ECB minutes point to the central bank's frustration with the currency bloc's governments' inaction. The Governing Council is effectively saying: "We are hitting a wall here - it's time for the Eurozone governments to step up." Labor reforms are especially important in this environment in order to support the ECB's effort.

Source: ECB Governing Council minutes

Indeed, the ECB is providing government deleveraging via QE, as privately held government debt balances collapse.

Source: Credit Suisse

1. In other Eurozone developments, the IMF insists that it would only participate in the bailout process if Greece receives a number of debt concessions. The IMF wants to turn the current Greek debt into something resembling a zero-coupon perpetual bond.

Source: Reuters

Source: ‏@fastFT

2. It's interesting that while this bailout debate rages between the Eurogroup and the IMF, the Greek fiscal situation continues to improve. The nation unexpectedly generated a €2.4bn budget surplus in 2016.

Source: ‏@fastFT

3. Next, we have a comparison of household leverage trends for Germany, France, Italy, and Spain. Amazing contrast.

Source: Credit Suisse

4. In another intra-Eurozone comparison, here is the divergence between Germany and France on construction output. Capital Economics believes this trend will continue.

Source: @CapEconEurope

In the UK, retail sales jump, beating expectations.

However, all this consumer spending is set to slow, as UK households have now blown through a great deal of their savings.

Source: Barclays

1. Turning to emerging markets, Iraq gets a $5.4 billion bail-out from the IMF. The nation's fiscal situation has completely deteriorated.

Source: @JavierBlas2

2. Nigeria's oil output falls sharply, disrupted by the militants.

Source: @JavierBlas2, @ElishaBG

3. The Brazilian economy has imploded. However, confidence seems to be stabilizing (second chart below). Green shoots?

Source: Société Générale, ‏@joshdigga

4. Indonesia's consumer loan growth hit new lows. It's hard to see strong GDP growth in this environment.

Source: Société Générale, ‏@joshdigga

5. India's fuel demand has spiked. Here is the breakdown.

Source: @FT, h/t Jake

6. What drives Russia's GDP growth? Below is the answer in one chart.

Source: Morgan Stanley

7. Venezuela is selling off gold reserves to stay afloat. Debt restructuring would be more prudent at this point, but it's not politically appealing.

Source: FT, ‏@M_C_Klein

8. Emerging-market currencies are becoming more correlated with the global equity markets. Over the past year, the risk-on/off pattern (which raises the correlation) has returned.

Source: ‏@markets

Turning to China, the post-FOMC-minutes media headlines are once again focused on the yuan.

Source: Bloomberg, h/t James

Source: WSJ, h/t James

Separately, China's broad (M2) and narrow (M1) money supply growth rates have diverged. This trend tells us that the new liquidity from China's recent credit spike is not flowing into the broader economy.

Source: Macquarie, h/t @MarathonWealth

1. Back in the United States. The Philly Fed index surprised to the downside, indicating manufacturing contraction. The first chart below shows the "unfilled orders" index, which remains negative. The second chart combines regional Fed reports to see what they tell us about the upcoming national (ISM PMI) manufacturing report.

Source: @Not_Jim_Cramer

2. Related to the above, the description on the chart below shows the hit to US manufacturing jobs.

Source: Barclays, ‏@joshdigga

3. Nevertheless, the US jobs markets continue to heal, as the inflow and the outflow trends from the "not in the labor force" diverge.

Source: Société Générale, ‏@joshdigga

4. Another Fed official joined his colleagues in calling for a summer rate hike. Such an outcome is becoming increasingly likely (second chart below).

Source: Reuters

Source: ‏@ReutersJamie

5. By the way, the option-implied probability of a rate cut has fallen (these are options on short-term rate futures).

Source: ‏@boes_

1. In commodities markets, the US dollar's surge is pressuring a number of markets. Here is gold taking another leg down.

Source: Investing.com

2. Silver was down 4% on the day, as the massive net long spec exposure gets unwound.

3. The dollar strength also hit coffee futures which were down over 4% on the day.

In the oil markets, the declines in crude oil contango (first chart below) is pressuring storage costs (second chart below). The "cash and carry" trade is no longer profitable.

Source: ERCE

Source: @barchart

Separately, the flattening US yield curve seems inconsistent with rising oil prices. Something has to give.

Source: Morgan Stanley

In credit markets, HY bonds have underperformed leveraged loans over the past year.

Source: Ycharts.com

Commodity-linked credit defaults spike. It will be interesting to see which banks are most exposed.

Source: ‏@lcdnews ·

1. In the equity markets, investors are questioning Bayer’s attempt to acquire Monsanto. Bayer would need to raise a massive amount of debt in order to close this deal. Shares fell sharply.

Source: ‏Google

2. Wal-Mart beat earnings expectations, reducing the retail sector underperformance as the shares jump. This beat is a positive indicator for consumer spending. Wal-Mart also seems to be focused on grabbing market share by squeezing competitors. Good luck with that small retail shop ...