The Daily Shot And Data - August 12

Greetings,

1. Let's begin with emerging markets where Egypt will receive a $12 billion bailout from the IMF (over several installments - see story). The F/X markets are still betting on a significant devaluation - nearly 30% over the next year.

Chart shows rate on a 12-month USD/EGP FX forward

2. Bloomberg points out that the deterioration of Venezuela's imports is accelerating the nation's product scarcity and pushing households to the limit.

3. Nigeria delayed its GDP and unemployment release. Budget problems? The numbers look too scary (risking further pressure on the currency)?

Source: Twitter, h/t @fastFT

4. The Russian GDP contraction was smaller than forecast. Green shoots? See some color below.

Source: h/t @markets

Source: Bloomberg

5. Malaysia's industrial production rose 5.3% (beating expectations) on broad-based economic growth.

6. India's 10yr bond yield falls below the "pre-taper-tantrum" lows.

7. EM equity markets continue to do well. Here is the Turkish stock market recovering from the coup-related decline. The second chart shows Mexican stock market index.

Source: Investing.com

1. Next, let's look at China, where the latest economic numbers were weaker than expected. Investment growth was especially soft (relative to previous months).

2. Investment by state firms still dominates - with private investment growth stalling. Real estate investment growth resumed its declines.

Source: ‏@acemaxx, @FastFT

Below is the breakdown of state-based stimulus. The nation's economy remains dependent on investment (or "malinvestment").

Source: Morgan Stanley, @business

3. China's 10yr government bond yield is hitting new lows with rumors circulating of material fixed income flows from Hong Kong to Mainland.

4. Nations are starting to push back on China's aggressive foreign investments (to a large extent in infrastructure).

Source: @business

New Zealand's 10yr government bond yield keeps declining - and yet it remains the best yielding government paper in developed markets.

1. Turning to Western Europe, Sweden reported unexpectedly high inflation for last month (in part due to food prices). Riksbank's easing may be on hold for now.

2. In the UK, the 30yr gilts are having a spectacular rally.

3. UK's investment grade corporate bond rally is unprecedented.

4. UK's market-based inflation expectations continue to move higher on weak sterling.

‏Source: @fastFT

5. The GBP/USD risk reversal (downside bias) reverts (close) to normal levels.

Source: Bloomberg LP

6. In the Eurozone, Italy can't seem to shake its deflationary pressures as inflation comes in lower than expected.

7. Is Germany looking at a GDP contraction last quarter? Industrial output figures would suggest that to be the case.

Source: ‏Natixis, @joshdigga

8. European shares erase all of Brexit-related losses.

1. Back in the United States, we see declining federal corporate income tax receipts. Some bloggers suggest that this means a near-term recession. However, this trend seems to be the earlier decline in corporate profits making its way through the system. Also, the new 50% accelerated depreciation law allowed firms to offset some of their earnings, which translated into lower taxes.

Source: Yardeni Research, h/t @DanCliftonStrat, @slapdash__

2. US broad money supply growth shows that credit is flowing.

3. US import prices are firmer.

4. On the other hand, here is why manufacturers set up shop in Mexico.

5. Here is the Fed's measure of treasury term premium. One explanation for this trend is that longer-dated government bonds are often not purchased for the yield but instead used as a hedge against risky portfolios (such as equities) and therefore carry some "optionality premium" in the pricing.

6. US securities held by foreign central banks at the Fed continue to decline. That's surprising because FX reserves globally seem to have stabilized.

h/t ‏@boes_

1. In the equity markets, at a 2.2% dividend yield, stocks are the "new bonds". The S&P 500 hits another record (as well as the Dow and the Nasdaq indices). The second chart below shows historical and projected dividend yield.

Source: Bloomberg Terminal; Function "FA"

2. The pressure to pump out dividend has grown, increasing the portion of income sent to investors.

Source: Bloomberg Terminal; Function "FA"

3. Macy’s (M) announced it would close some 15% of its stores and reduce the workforce. The shares jumped 17%, however, in response to better than expected earnings.

Source: Google; see story

4. Here are the Japan Government Pension Investment Fund (GPIF) foreign equity holdings (top 30).

Source: @MarathonWealth

1. In the energy markets, US crude oil and gasoline rallied almost 5%.

Source: Bloomberg LP

2. This rally was in response to the Saudi energy minister comment that his nation may be willing to help rebalance the oil market. Capitulation?

Source: @WSJ

3. Here is the oil market cycle represented in a simple diagram,.

Source: @Stalingrad_Poor

4. Separately, US treasuries sold off (yields rose) in response to this oil rally. The negative correlation between treasuries and oil, while not very strong (second chart below), seems to be stable over time.