The Daily Shot And Data - February 18, 2016

Greetings,

We begin with the United States where the latest FOMC minutes suggest at least some unease with the current economic trends and market conditions.

Source: FRB

The decision to stay put on rates however is not going to be an easy one for the FOMC. The PPI (wholesale inflation) seems to have bottomed out and should oil prices stabilize, it will continue to climb higher.

Source: ‏@auaurelija

Moreover, cash metals prices seem to have bottomed as well.

Source: barchart

By the way, related to the above, here are the metals & mining shares over the past week.

Source: Ycharts.com

Many other commodities show similar patterns. For example, we've had a 20% recovery since November in hog futures. WHO's warning seems to have been forgotten and bacon is back in demand.

Source: barchart

Based on the latest US PPI report, Capital Economics is projecting a pop in the core PCE inflation measure - an index the Fed watches closely.

Source: ‏ ‏@CapEconUS

The physicians component of the PPI for example is at a 4-year high.

Source: ‏ ‏@CapEconUS

There are also indications that US industrial production (including manufacturing) and capacity utilization have stabilized.

On the other hand, tighter credit conditions will be a cause for concern, making the above improvements less relevant.

Source: @business

Additionally, some financial conditions indicators, such as the Cleveland Financial Stress Index still show significant unease.

Related to the above, here is JPMorgan's recession probability - which should also give the FOMC some pause.

Source: @NickTimiraos

And in spite of the selloff, the trade-weighted US dollar index remains near cycle highs.

Some point to the GDPNow US GDP tracker projecting some 2.7% growth for Q1 (discussed yesterday). Such growth would certainly justify another move toward rate "normalization". However, just take a look at the services sector activity (below) and consider the fact that the Q4 GDP growth was 0.7%.

Two other indicators make that 2.7% growth projection unlikely.

1. Economists' GDP consensus declined sharply in recent weeks.

Source: @Not_Jim_Cramer

2. Another indicator of GDPNow "misfiring" is this simple comparison with treasury yields.

Source: @enlundm

Now let's take a look at some data from Japan.

1. The nation's imports and exports have both fallen sharply.

Source: Investing.com

2. Adjusted for the consumption tax hike in 2014, Japan is in deflation.

Source: ‏@jsblokland, @wef

3. Japan's overnight interbank rate went negative as the BoJ's latest policy change makes its way through the system.

Source: @fastFT

Turning to China, ...

1. ... here is the trend for non-performing loans in the banking system.

Source: @business

2. Growth in China's wealth management products is ending. Some banks chose to make investors (depositors) whole when these investments failed. Nevertheless banks have become more cautious with these products. While a positive development for the long run, it's a headwind for near-term growth.

Source: @valuewalk, h/t Alex

3. Is this the second Hong Kong property bubble?

Source: @historysquared

Related to China's slowdown, Taiwan's economy slides into a recession.

Here are a few developments in other emerging economies.

1. The Indian rupee is approaching the taper-tantrum lows. This will really constrain the RBI. In spite of softer global growth, rate cuts in India are likely on hold now.

Source: barchart

2. Russia files a suit against Ukraine in London over $3 billion of unpaid debt. This is the last thing Ukraine needs now as its currency weakens further.

Source: Investing.com

3. On the other hand, the Russian ruble rallied 3% on stronger crude prices.

Source: Investing.com

4. The Capital Economics capital flows tracker shows investors running for the exits in emerging markets. This is another one of those indicators that would suggest that now is an interesting time to consider investing in some of these markets.

Source: @CapEconEmerging

In Europe we've had a record low yield at the latest 10y gilt auction.

Source: Investing.com

Greece is in deflation again. If we take out the effect of tax increases last year, the situation is even worse.

Source: ‏@CapEconEurope

Turning to the energy markets, as expected Iran is not willing to freeze production (unless it is given a much higher quota).

Source: ‏‏the guardian

Crude oil rallied nevertheless.

Source: barchart

One piece of news that was helpful for oil was the unexpected draw on US crude oil inventories. Otherwise, near-term crude oil fundamentals remain terrible.