Global Macro Currents

As expected, Beijing's currency weakening and the amateurish attempts to stabilize the equity market via the "circuit breakers" sent global markets into a tailspin. Here are a few highlights.

Equity markets

1. Canada.

2. Brazil.

3. US small caps and consumer luxury shares got hammered. By the way, while the situation with the luxury index makes sense, the selloff in US small caps seems overdone relative to the S&P500 given the limited exposure to China. This is mostly risk-off sentiment.

Source: Ycharts.com

4. The VIX curve is inverted again - an indication of elevated risk aversion.

Source: Ycharts.com

Source: @SoberLook

Currency markets

1. The Canadian dollar remains under pressure.

Source: ‏@tracyalloway, @LJKawa

As an aside, will this currency weakness help Canadian property markets and the construction industry? These sectors will definitely need stimulus to maintain post-recession growth.

Source: Macquarie, h/t Josh

2. We had another record low for the Mexican peso (chart shows that the dollar now buys record number of pesos).

Source: Investing.com

The officials in Mexico must be reading the Daily Shot because we got this headline on Thursday ...

Source: FT

Related to the above, it has become easier to "fight currency wars" as monetary policy these days has a larger impact on FX moves. IRD = interest rate differential (between two currencies).

Source: @vexmark

3. The South African rand breached 16 to the dollar - also an all-time record low. More on this later.

Source: Investing.com

Commodities

1. WTI crude traded well below $33/bbl.

Source: Investing.com 2. Copper got hammered.

Source: Investing.com 3. The CRB Commodity Index hit the lowest level since 2002.

Source: Bloomberg.com Beijing has had enough market turmoil for now as it halted the RMB depreciation this morning (for now).

Source: barchart We also got this news (below).

This just shows the inexperience and desperation of China's officials in dealing with capital markets during times of stress.

Source: the Guardian

Source: @fastFT, @patrickmcgee_

These actions seem to have worked - for now. Here is the Shenzhen Stock Exchange Composite.

Source: Google

Let's see how things play out next week, but as of Friday morning risk assets are rallying.

This "controlled" devaluation is costing China in terms of FX reserves. To be sure, the nation's FX reserves are massive but the trend is certainly unhealthy.

Source @business In other China-related developments, Beijing continues its attempts to develop debt capital markets. Here are the trends in munis and ABS. The market is still relatively small, but could grow rapidly.

Source: Macquarie, h/t Josh

Related to the above, here is how China's debt compares to the US and Japan.

Source: Macquarie, h/t Josh

In other emerging markets we have a number of updates.

1. The Saudi fiscal breakeven on oil price is now higher than Iran - which gives Iran an advantage in the low-for-longer price regime.

Source: @BV, Bloomberg.com 2. Brazil's industrial production is collapsing ...

Source: Investing.com 3. Israel's FX reserves hit record high - possibly in response to the Fed starting the rate hike cycle.

4. Mexico's inflation falls to record low. However, given the massive currency decline, inflation is expected to begin rising this year.

Now let's go to the Eurozone where the latest economic reports have been mixed.

1. Retail sales were the weakest in 12 months. Some attribute this to the unusually warm weather (less demand for winter clothing, etc.) Perhaps.

Source: Investing.com

2. The labor markets continue to heal gradually as the unemployment rate falls more than expected - the lowest level since 2011. It's important to point out however that in Spain and Greece youth unemployment is just below 50% - the currency block has a long way to go.

Source: Investing.com

3. German manufacturing orders rose more than forecast and exports are expected to increase.

Source: @business

UK housing valuations continue to rise sharply, hitting another record (rising 9.5% in 2015). The housing shortage in some areas has been quite pronounced.

Source: the Telegraph

Source: Investing.com Back in the United States the Challenger, Gray & Christmas index of job cuts hit a 15-year low.

Large scale layoff announcements have become fairly rare.

Nevertheless, as discussed yesterday, the China jitters have significantly reduced the rate hike expectations. The April hike probability is now below 45%.

Source: @markets

The US monetary base declined sharply last week as the Fed's RRP absorbs liquidity. This of course is overnight money and the monetary base will fluctuate with the uptake in the RRP.

Turning to credit, a firm's size contributes only 6% to the overall credit risk (according to Moody's,) This tells us that small company debt is not necessarily riskier than it is for large companies. Here is how other factors are weighted in the Moody's risk model.

Source: Moody's

Finally, here is the trend for hedge funds vs. private equity institutional mandates. The hedge fund industry could face significant pressure this year.