The Daily Shot And Data - April 22, 2016

Once again we begin with the United States where the new jobless claims fell to a 42-year low.

How is this possible in an environment with anemic economic growth? Many economists believe that this is due to weak productivity growth. If companies don't invest in making themselves more efficient, they need more employees in order to grow.

Source: Deutsche Bank

Deutsche Bank, for example, argues that due to weak productivity growth demand for labor will continue to stay brisk. For now, firms will dip into the pool of people who had left the labor force. However, when the labor force participation rate returns to its demographic trend, labor markets will tighten quickly - potentially surprising the Fed.

Source: Deutsche Bank

Here is what happens to the unemployment rate if US productivity growth remains low.

Source: Deutsche Bank

Next, we have several other developments in the US economy.

1. Speaking of labor markets, demand in the manufacturing sector does not look promising. Here is the Philly Fed (PA, NJ, DE) employment sub-index.

The Philly Fed overall activity index moved into contraction mode again due to a slowdown in orders and weak employment (above).

On a positive note, expectations for future manufacturing activity improved sharply.

2. As discussed previously, US financial conditions continue to ease - here is the latest breakdown.

3. The Gallup US economic confidence index turned lower. Could be just noise.

Source: @Gallup, h/t @Peter_Atwater

4. Services continue to become a greater part of the US economy. Here are the services and manufacturing sectors as a percentage of the US GDP.

5. Next is an update on the US Q1 GDP growth trackers: Atlanta Fed: 0.3%, Morgan Stanley: 0.7%.

Source: @AtlantaFed

Source: Morgan Stanley

6. Continuing with the US economy, UBS asks if shared households (doubling up) is about to begin declining?

Source: UBS

The majority of Americans wishing to exit shared households (and most plan to do so eventually) want to rent a place.

Source: UBS

However, rising rental costs could hamper household formation, keeping the number of shared households elevated.

Source: UBS

7. A paper from the Dallas Fed shows America's diminishing wealth effect from rising home prices. Prior to the financial crisis, rising home prices had much more of an impact on consumer spending than they do now. Part of the reason was consumers' willingness during the housing bubble to tap their home equity credit lines.

Source: Dallas Fed

Source: Bloomberg.com, h/t @MarathonWealth

Next, we have some updates on the Eurozone.

1. In the latest ECB press conference, Mario Draghi stressed patience in response to weak inflation expectations (shown in yesterday's Daily Shot).

Source: ECB

2. The ECB is solidifying the plan to buy corporate bonds wich ended up pushing Bund yields higher (corporate bonds are "crowding out" government paper). Here are the European investment grade mutual fund flows.

Source: Citi

3. The ECB should be happy about the improvements in monetary transmission (low policy rates making their way to companies and households).

Source: Goldman Sachs

4. Competition seems to be driving easier bank lending standards in the Eurozone. By the way, Italian banks have been especially aggressive in easing credit standards for businesses.

Source: Goldman Sachs

5. EU/IMF lenders made some progress in negotiations related to the Greek bailout structure. There is discord within "troika" as the IMF wants to take a different path. Greek banks were up almost 11% on the day in response to the progress.

6. French business sentiment report was stronger than expected. This result is quite positive because France has been having trouble maintaining consistent growth.

In other European developments ...

1. The UK retail sales growth slows.

Source: Goldman Sachs

2. The Swiss National Bank (SNB) foreign currency holdings (mostly EUR) and the Swiss monetary base hit new records. The main reason the SNB continues to purchase euros is to keep the Swiss franc from appreciating further. This is making many in Switzerland uneasy.

3. Sweden's Riksbank increased securities purchases, with the QE meant to keep krona from strengthening against the euro. Riksbank is just responding to the ECB (Sweden's economy is fine and if it wasn't for the ECB, QE could not be needed).

Source: Credit Suisse

By the way, here is Riksbank rate trajectory projections history. This last one may actually end up being too low.

Source: Nordea

Now on to Japan, where the manufacturing sector is contracting faster than projected. Here is the latest PMI summary from Markit.

Source: Tradingeconomics.com

Source: Markit Economics

There are rumors that the BOJ may be offering some banks loans at negative rates. That is it will lend them money and pay them to take the money (by the way, the ECB will be doing this as well with the latest TLTRO). The Nikkei jumps again on the news.

Switching to China, iron ore futures in Singapore jump nearly 5% in one day.

Source: barchart

There is also frenzied buying in steel futures in Shanghai. All of this is in the hopes of significant construction demand improvement in China.

Source: barchart

Indeed, construction activity in China has improved. But is the spike in steel and iron ore prices justified given this modest increase?

Source: UBS

Separately, "Hot" money outflows from China continue.

Source: UBS

China's shares significantly underperform global equity markets.

The chart below shows Saudi oil and non-oil revenue. Is it time to start generating revenue the hard way?

Source: BAML

Next, we have a couple of updates on the energy markets.

1. Brent crude front contract is in backwardation (negative sloping). This usually indicates bullish sentiment.

Source: @SoberLook

2. Here is a chart showing the top 10 energy companies by oil reserves.

Source: BAML

3. After hitting multi-year lows, the UK natural gas prices rise on lower Norwegian supplies and stronger oil markets. Futures jump almost 6% in one day.

Source: ICE

Now, some updates on credit and equity markets.

1. HY credit downgrades in 2016 have already exceeded last year's levels.

Source: @FT

2. According to the Fed, US "commercial paper outstanding rises to $1.11 trillion, the most since early 2013". It's interesting that the Fed's one rate hike actually helped this market by boosting demand.

3. SunEdison files for bankruptcy - what a spectacular creation and destruction of value in a short period of time. The firm just got way too aggressive.

Source: @fastFT:

4. High-dividend shares underperformed Thursday as long-term rates rose.

Source: Ycharts.com

5. Google and Microsoft shares take big hits in after-hour trading as earnings miss. Google (Alphabet) continues to run some very expensive projects that don't yet bring in revenues.

Source: Google

6. The percentage of Americans participating in the stock market falls again. Retail investor confidence has not recovered since the financial crisis.