The Daily Shot And Data - February 2, 2016

Let's begin with several charts on China from our friends at RBS as well as other sources.

1. The nation's reliance on over-investment for growth stands out when compared to other nations.

Source: ‏@RBS_Economics

2. According to RBS, the economic "rebalancing" has been primarily driven by the financial services sector. Reliance on the financial sector for growth is risky (as we've seen in other economies).

Source: ‏@RBS_Economics

3. China's corporate debt growth has been spectacular and the debt addiction seems to continue. While credit growth has slowed, it remains above 11% per year.

Source: ‏@RBS_Economics

4. RBS China GDP tracker shows real GDP growth materially below the official figures.

Source: ‏@RBS_Economics

5. If the above trends scare you, don't worry. Stimulus is here to save the day - at least in the near-term. A couple of years down the road could be a different story.

The monetary easing has ways to go and fiscal stimulus is ramping up (shown as a spike in government deficit). In order to maintain growth, China will have to materially increase central government debt.

Source: ‏@Callum_Thomas

6. The last chart shows that China's falling natural resources demand and production overcapacity is spilling into the global commodity markets. The nation is dumping its excess product abroad.

Source: ‏@Schuldensuehner, @BloombergBrief

China's refined fuel exports are not helping the global oversupply. And so far it is the oversupply that seems to pressure oil prices. At least in the US there is no evidence of weakening demand.

Source: DB, h/t Josh

On Monday the supply issues continued to pressure crude, as everyone realized that Russia's and Venezuela's attempts to talk OPEC (mostly the Saudis) into some sort of production cuts is futile - at least for now. NYMEX crude oil sold off some 6.5% during the day and fell below $31/bbl after hours. Interestingly oil also decoupled somewhat (although not entirely) from equities.

Source: ‏barchart

The recent correlation remains difficult to explain. There seems to be a general concern about China (for reasons discussed above) followed by low oil prices. Below is the BAML survey showing increased fears of low oil prices.

Source: BAML, h/t Josh

Here is an interesting take on oil-equity correlation by Rashad Ahmed (Daily Shot reader). If you have trouble opening the PDF document, your corporate firewall is blocking it.

Source: Rashad Ahmed

By the way, shown below is the global oil rig count. Note that the rig count in the Middle East nations only (second chart below) has not fallen.

Source: DB, h/t Josh

Source: HSBC, h/t Josh

Continuing with the BAML survey, January saw a significant shift into cash - a bullish sign for equities?

Source: BAML, h/t Josh

Here are a few other developments in the equity markets.

1. Only 5% of S&P500 stocks are above their 20-day moving average.

Source: @MktOutperform; h/t Jake

2. Gradual Fed rate hike trajectory historically has been a positive for shares. Will it be different this time?

Source: @Callum_Thomas

3. Apparently the CDC has been unable to find the root cause of E. Coli in Chipotle food. The word "sabotage" has been floated by some. Scary.

Source: @business, h/t Jake

4. Google's (technically Alphabet's) market share exceeded that of Amazon, making it the largest company in the world.

Source: ‏@Schuldensuehner, FT

5. Here is the US small cap underperformance over the past 6 months.

Source: Ycharts.com

6. Last week European corporates had the largest number of earnings forecasts downgraded than at any time since the Great Recession.

Source: @acemaxx, @MorganStanley

7. Here are the S&P500 companies with the highest exposure to Latin America.

Source: ‏@FactSet

Turning to credit markets, we have a few noteworthy updates.

1. We are seeing some nasty outflows from European corporate investment grade mutual funds.

Source: Morgan Stanley, ‏@Fmirw

2. We clearly have some tightening of credit conditions in US corporate lending. Underwriting standards have tightened, spreads have increased, and demand seems to have fallen.

Source: @Callum_Thomas, Fed's US Loan Officer Survey

3. HY issuance tanked in the second half of last year.

Source: @BloombergBrief

4. Merrill Lynch clients really like current HY valuations relative to other assets.

Source: BAML, h/t Josh

5. Is US corporate leverage too high?

Source: Citi

Back in the United States we have a number of items to cover as economic data remains mixed (at best).

1. US construction spending has stalled.

2. According to some economists, the Hornstein-Kudlyak-Lange US index is "a more accurate reading of labor market market conditions" than the headline unemployment rate. Later we will run this against the job openings rate to take another look at the Beveridge curve.

3. The Chauvet US recession probability (see overview below) is still very low but is elevated relative to the last 5 years.

4. US manufacturers are running lean inventories as customer inventories remain elevated.

5. US PCE inflation remains subdued even when excluding food and energy. Here is the core PCE.

The "trimmed mean PCE" inflation rate (apparently the Fed looks at this measure quite closely) tells a similar story. The Fed will have a tough time arguing that inflation is sufficiently high to justify further rate hikes in the near-term.

6. Related to the above, the Fed rate hike implied probability has been moving with market-based inflation expectations.

Source: BAML, h/t Josh

7. While the ISM report shows that the contraction in US manufacturing is slowing, manufacturing employment mertics look terrible (the weakest level since 2009 and in contraction mode).

Source: ‏Investing.com

Now let's look at a few economic developments around the world.

Japan's monetary base hit 3.5 times the 2010 level last month. Amazing..

Source: BoJ

Here is the Baltic Dry shipping index. The implosion in the dry bulk shipping industry has been tragic.

Source: stockcharts.com

The Argentine peso hit record low as inflation expectations create demand for dollars.

This chart shows falling Asian imports - a "bad sign for the world economy" according to RBS.

Source: @RBS_Economics

The South African manufacturing sector is under severe pressure; here is the manufacturing PMI.

Source: TradingEconomics.com

Finally, a couple of updates on commodity markets.

1. Gold continues to grind higher as markets price in further delays in US rate hikes.

Source: Investing.com

2. There's the sugar high - speculative longs betting on El Niño induced shortages of sugar. What a disaster that turned out to be, as the unwind continues.

Source: Deutsche Bank, h/t Josh

Source: Investing.com

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

1. Which country's consumers are spending the largest percentage (of total spending) on energy?