The Daily Shot And Data - August 4, 2016

Greetings,

Let's begin with the energy markets which continue to have a significant influence on the equity markets and the overall risk appetite.

1. US crude oil inventories unexpectedly rose at the time of the year when oil stocks are typically flat or declining.

2. US crude oil imports rose again - this remains a cheaper method of getting crude oil to the East Coast as opposed to shipping via rail from within the US.

3. US crude production continues to decline, although there is some evidence declines may be slowing.

Source: EIA

By the way, here is the spread between Saudi and US oil production. It's moving in the direction the Saudis want.

Source: EIA

4. While crude oil inventories change was clearly bearish (first chart above) the market focused on the amount of gasoline in storage - which fell much more than expected.

Week-over-week change

5. Crude oil jumped in response to this gasoline report, rising nearly 4%.

Source: barchart.com

6. Gasoline prices also rose. It's worth pointing out that wholesale gasoline may continue to move higher because managed money accounts are running a record net short gasoline futures exposure. A short-squeeze may ensue.

Source: barchart.com

Source: Bloomberg LP - see story

7. Separately, shares of coal companies continue to rally, doubling in price on average since January.

Source: barchart.com

1. Now let's go to emerging markets where the Brazil sovereign CDS (credit default swap) spread shows some easing of investor concerns. With the currency having stabilized and the economy possibly near the bottom, sovereign risk has been reduced. The new leadership seems to be moving (roughly) in the right direction, and political risks have abated - for now.

Source: Bloomberg LP

2. Brazil's economy is still contracting but the pace of decline seems to be slowing.

3. Russian services PMI surprised to the upside as growth surges at the fastest rate since 2013.

Source: @MarkitEconomics

4. As an aside, this chart shows remittances (sending money back home) of foreign workers in Russia and elsewhere in the world in 2014 and 2015.

Source: @EIAgov

5. Russian inflation is expected to remain benign as demand stays weak.

Source: Credit Suisse, @joshdigga

6. Turkey's inflation jumped on higher food prices and weaker lira (after the coup). More inflation to come?

7. The Philippine stock market was down 2% after the recent rally.

Source: Investing.com

8. Dollar-Egyptian pound exchange rate 1-year forward shows markets betting on Egypt's devaluation.

Source: Bloomberg LP

Dollars are expensive in Egypt's black market these days - and rising in price. As a result, shares of food companies who need to procure imported product fell to 2013 lows (Egypt is one of the largest food importers).

Source: Bloomberg LP - see story

9. Emerging and developed markets' economies are out of sync.

Source: Morgan Stanley, @joshdigga

1. Switching to the Eurozone, according to the FT, "a fifth of ECB corporate QE bonds were bought at negative yields".

Source: @FT

2. There is no evidence of Brexit contagion on the Eurozone (thus far), as the composite PMI beats expectations. Below is a nice summary from Markit.

Source: @MarkitEconomics

2. According to the Economic and Social Research Institute (ESRI), "Irish consumer sentiment has been softer, but the fall in July was not as large as feared". Consumer expectations, views on the economy and the job market took a hit.

Source: ESRI

3. Italy's largest bank UniCredit posted surprise drop in Tier 1 ratio - conveniently after the ECB stress tests. Investors are very jittery about asset quality, sending shares lower again.

Source: Bloomberg.com

Source: Google

4. According to Credit Suisse, European HY spreads suggest some downside to bank loan provisioning. Perhaps. Or maybe European HY spreads are simply artificially low due to QE.

Source: Credit Suisse, @joshdigga

Elsewhere in Europe, Norway's house price boom continues, approaching 9% per year.

Source: data from Real Estate Norway

1. Turning to the UK, the nation's services business expectations index is shown below. Ugly. A summary from Markit follows, suggesting a mild recession ahead.

Source: @MarkitEconomics

2. As a result of the above, market-implied probability of a BoE rate cut today is 100%. The BoE is effectively forced to cut - otherwise, markets will go into a tailspin.

Source: Bloomberg LP

3. Separately, how does a company show a 40% drop in profit and sends its shares surging 5%? HSBC did it by announcing a $2.5 billion share buyback.

Source: Google; see story from the WSJ

1. Turning to Japan, the chart below shows household credit growth for major economies. Japan's household credit growth is now above that of the US as the Japanese consumer finally learns to love debt.

Source: @jpmorganfunds

2. What's happening to JGBs?

Source: Investing.com

Source: @WSJ

3. Japanese equities are the cheapest in 30 years when compared to US equities.

Source: Credit Suisse, @joshdigga

4. Here is the cumulative USD/JPY return by three time zones. Note that the yen tends to strengthen (dollar declines) during Japan's trading hours.

Source: BofAML, @joshdigga

5. Here is the percentage of government debt held by central banks.

Source: @jpmorganfunds

1. Back in the United States, the Fed's Charles Evans says that one rate hike this year would be appropriate. "Perhaps".

‏Source: Reuters

2. We see some encouraging signs from the latest ISM report as US non-manufacturing orders show improvement.

Source: ISM

3. According to ADP, manufacturing is no longer detracting from US private payrolls. Construction, however, is shedding jobs.

Source: ADP

4. The next two charts show weakness in US corporate investment ...

Source: @joshdigga, HSBC

Source: @joshdigga, Deutsche Bank

... However, it seems that the drop in investment is primarily due to the energy sector. According to BEA, non-energy investment is up 5.5%.

Source: @ukarlewitz, @merrillmatter

5. The Atlanta Fed US earnings indices show "meaningful signs of wage growth".

Source: Credit Suisse, @joshdigga

6. According to BofAML, "growth rate of federal tax receipts has slowed".

Source: BofAML, @joshdigga

7. US house purchase mortgage activity declined in recent weeks.

In the equity markets, US small caps outperformed materially over the past month.

Source: Ycharts.com

Finally, the Ivy endowment competition continues. Does this type of ranking/comparison pressure endowments into mimicking each other and pile into the same kinds of assets?