The Daily Shot And Data - April 26, 2016

Greetings,

Let's begin with Japan where the BoJ's policy decision looms large. As inflation expectations decline, the BoJ is likely to act, and all the tools seem to be on the table. These range from providing some banks with negative interest loans (to cushion the impact of negative rates) to a doubling of JGB buying program and even accelerating the purchases of equity ETFs.

Source: @ANZ_Research

Goldman is of the view that the BoJ will boost QE sharply, ultimately sending dollar-yen to 130. An aggressive BoJ easing action could prove painful for many speculative market participants who on the whole hold a massive net long yen exposure (discussed yesterday).

Source: Goldman Sachs

Moreover, Goldman sees no scarcity of JGBs to limit the BoJ in any way (unlike the situation with the ECB).

Source: Goldman Sachs

While the BoJ's assets as a percentage of the GDP are at unprecedented levels, the central bank's bond holdings as a percentage of JGBs outstanding are comparable to that of the BoE for example. Of course that speaks to the size of Japan's outstanding debt.

Source: Goldman Sachs

It is expected that expanding QE in Japan will push JGB yields even deeper into negative territory.

Source: Deutsche Bank

Separately, Mitsubishi Motors shares just took another leg down, a drop of over 9% on the day.

Source: Google

1. Turning to China, UBS is warning Hong Kong equity investors that the listed Mainland shares carry default risks. Corporate spreads of many Chinese firms continue to rise.

Source: @mcdonaldsarahj, @justinaknope

2. Moreover, China's total corporate debt is still increasing, putting the nation's overall debt level above that of the UK and the US.

Source: ‏@pdacosta, @FT

3. China's government bond yields bounced this month. Is higher inflation expected or are we about to see a larger supply of government bonds?

4. China property valuations have improved sharply as shown in this color chart.

Source: Morgan Stanley

5. With the recent spike in steel prices, China’s steel mill margins jump.

Source: @StuartLWallace, @MartinShanghai

Now let's look at a few developments in other emerging economies.

1. Brazil's 2016 GDP growth continues to get downgraded.

Source: @SoberLook

2. Mexican retail sales spike on a year-over-year basis. A portion of this is due to the leap year (Feb/Feb comparison), but it's a strong result nonetheless.

3. Saudi and Iranian fiscal break-even oil prices (levels at which governments begin to run a surplus) drop as the nations' governments cut spending.

Source: @JavierBlas2

4. Singapore's deflation worsens.

Source: Investing.com

Next, we visit the Eurozone.

1. This chart shows the ECB balance sheet vs. European bank shares. QE pushes rates lower and flattens the yield curve, hurting bank margins in the process.

h/t Sean

2. The WSJ reminds us that we no longer hear the criticism that central bank interventions create a moral hazard. The ECB's corporate bond purchases certainly reduce incentives for companies to strive for healthier balance sheets to obtain cheaper financing. It seems that French and Dutch companies will especially benefit from this program.

Source: @Birdyword

3. The euro looks too expensive based on the rate differentials.

Source: Morgan Stanley

Related to the above, the US dollar looks undervalued based on the same methodology.

Source: Deutsche Bank

4. Finland's PPI rate moves deeper into negative territory. While most economists project the Eurozone inflation to begin rising soon as oil prices stabilize, we are not quite there yet.

Norway's sovereign wealth fund sees a drawdown as the nation struggles with low oil prices.

Source: ‏@business

Back in the United States, we have a few observations.

1. The ratio of new homes sold to the population growth remains depressed. This underinvestment in housing will become problematic in years to come.

Source: @SoberLook

Here is the inventory of completed new homes for sale in the US.

2. While we are expected to face tighter labor markets in the near-term, the product output gap has widened (we've seen industrial capacity utilization decline recently).

Source: @OxfordEconomics

3. Americans continue to hit the road as US total miles traveled reaches another record.

Finally, we have a couple of market developments.

1. Money managers have loaded up on long oil exposure.

Source: ‏@JKempEnergy

2. Hot money is hitting the commodity markets (as we saw with grains for example), pushing trading volumes to new highs.

Source: BAML, @TheStalwart

Turning to Food for Thought, we have 5 items this morning:

1. The GOP delegate count projections suggest that the nomination will be decided at the Republican convention.