The Daily Shot And Data - August 8, 2016

Greetings,

We begin with the United States where Friday's payrolls report significantly exceeded forecasts. The labor markets improvement was broad, showing an increase in participation as well as in wage growth.

1. Do we expect this trend to continue? Here is a comment from Merrill Lynch.

Source: BofAML

2. The labor force participation seems to have bottomed last December - for now. Over time, demographic forces will continue to push participation lower, but the current stabilization is welcomed.

3. US wage growth is gradually picking up momentum. Companies will need to boost productivity to maintain margins.

4. On the other hand, US underemployment (U-6) has stalled.

5. The chart below indicates that there are millions of people who are not in the labor force but want a job. Some of this is due to the persistent skills gap. We no longer have the construction boom that absorbed a great deal of low-skilled labor during the "bubble" era.

6. Average US duration of unemployment remains elevated relative to historical levels.

7. US oil & gas as well as coal mining payrolls continue to decline (on a year-over-year basis).

Here is how select markets reacted to the payrolls report.

1. Treasuries sold off after having rallied in response to the Bank of England action on Thursday. Below is the 10y treasury yield.

2. The Fed rate hike probability this year rose - approaching even odds again.

3. The US dollar rose as well.

Source: barchart.com

4. It was a bit surprising to see the US equity markets jump to new records given the increase in the rate hike probability and a higher dollar. It's important to keep in mind that the current equity valuations only make sense (perhaps) at the historically low rates we have today.

Source: barchart.com

1. Turning to Canada, the nation lost the most full-time jobs in nearly 5 years while the labor force participation continues to drop (though remains about the US levels). A temporary blip?

2. Canadian trade deficit was worse than expected.

1. Now on to the UK, where according to HBOS, the nation's house prices are still up over 8% from last year. This trend is reflective of an ongoing housing shortage.

2. Speculative accounts are still massively net-short the British pound. It's a matter of time before we see a short-squeeze in this market.

3. Consumer sentiment indicators suggest that the official UK retail sales figures are about to crash.

Source: Natixis, @joshdigga

Elsewhere in Europe, Norway's industrial production plunged in June. Despite some signs of improvement recently, the nation's economic trajectory remains uncertain.

1. Switching to the Eurozone, German manufacturing orders have been softer than expected. The decline has been driven by weaker orders in the rest of the Eurozone.

Source: Statistisches Bundesamt

2. Italy’s industrial output unexpectedly fell, creating further headwinds for Renzi's government. Italy has already had two recessions since the end of the Great Recession. Is there another on the way? Most economists don't believe that to be the case for now.

3. Italy has been successful in raising some €2.4bn for its new bank rescue fund - a small amount given the size of the banking problem but enough to help Monte dei Paschi.

Source: @FT

4. Italian banks jumped 5% on Friday.

5. In fact, helped by the Bank of England's move, European banks are up 6% over the last 3 days (through Friday).

Source: Bloomberg LP

Japan's index of leading economic indicators continues to decline. It's interesting that as the BoJ's QE was turbocharged and the yen weakened, the leading index moved up sharply. However, after the initial euphoria of the BoJ's balance sheet expansion and with the consumption tax hike, the index started its 2-year decline.

Source: ‏BoJ, Tradingeconomics.com

1. In emerging markets, India's FX reserves hit a new record.

2. Indonesia's GDP growth seems to have stabilized, helped by government spending.

Source: Natixis, @joshdigga

3. According to the US Department of Energy, "Turkey is increasingly dependent on natural gas imports." This trend, of course, has significant geopolitical implications - especially given the tense post-coup relationship with the EU/US.

Source: ‏@EIAgov

4. We've just had the largest 4-week inflow into emerging markets debt funds on record. The hunt for yield has moved to into EM debt as investors hope that a stronger dollar isn't going to upset the apple cart again.

Source: BofAML

1. Switching to commodities, we had another weekly increase in US oil rig count - a 6th in a row.

2. Cotton hit a 2-year high as traders eye potential problems with China's crop quality.

Source: ‏barchart.com (further reading)

3. US milk futures continue to rally.

Source: barchart.com

4. Less-than-favorable weather projections in Brazil and India plus some end-of-day buying by funds sent sugar up over 3% on the day.

Source: barchart.com

5. China's iron ore prices continue to rally on (perceived) demand from China. There is talk that China's government has much further to go in reducing coal and steel overcapacity, but it's not immediately clear how that would reduce the iron ore oversupply. No worries, it's a "momentum" play.

Source: barchart.com

6. Silver (and gold as well) declined in response to the forecast-beating US payrolls report. Is the crowded trade in silver starting to unwind?

Source: barchart.com

7. According to the FT, "after years of being overshadowed by its grain exporting rivals, the US is set for a comeback".

Source: @FT

1. In the equity markets, US regional banks have outperformed the large banks year-to-date.

Source: Ycharts.com

2. The US equity vol curve is steepening again on increased risk appetite.

Source: Ycharts.com

3. Related to the above, VIX is approaching 11 as US equity markets hit new records.

Source: barchart.com

Finally, we have a letter to the editor in response to the FT article we referenced on Friday (below) on the hacking of Bitfinex, a bitcoin exchange.

Source: @FTMarkets

FT's description of the hack of Bitfinex being a "leak" is total nonsense. Moreover, this was an exchange hacked ....NOT the bitcoin protocol/code itself.

The hackers stole $70Mln from Bitfinex (all exchanges for that matter, would not do an official "we were hacked" announcement for fear of giving incorrect information).

This supposed move in BTC that FT points out, "before" the official announcement by Bifinex is, in my opinion, the hacker liquidating the newly stolen BTC on the market via various exchanges.

When one transacts in bitcoin, for a confirmation to be official on a "send", only about 10 minutes expires for almost all transactions to be confirmed and "settled". Miners confirm transactions via mining equipment on the Bitcoin network, within in 10 minutes, usually.

For example, if one moves a Bitcoin at 1.10pm...by 1.20pm, that person can officially do what they want with the coin, like sell it on the market. It is so fast because it is peer to peer without an intermediary confirming each and every little transaction. The community / protocol of Bitcoin does it. That is why this invention is so unique. No intermediary really needed, no fraud, no double counting, no counterfeiting. A bank in your mobile phone, literally. If one moves funds around in a bank, it would take days to clear SWIFT or ACH. BTC clears FAST! Once a transaction clears or is confirmed - the BTC can move it again because it has "settled" in their account.

It does not take much volume to move the BTC price. He stole about 116k BTC....usually a few thousand BTC sold will move the BTC huge percent wise.....because BTC is not as liquid as, say MSFT. Remember BTC is essentially a large hedge fund, in terms of market capitalization size, approximately $9B, tiny compared to most other capital markets.

Patrick Feeney

Turning to Food for Thought, we have 5 items today:

1. Real assets are at all-time lows relative to financial assets - a nice chart from Merrill Lynch.