The Daily Shot And Data - February 24, 2016

Let's begin with a number of developments in China.

1. According to RBS, Beijing may not have sufficient appetite for an aggressive fiscal stimulus program as well as bank bailouts, as non-performing loan balances increase. One could argue that it will be forced to undertake both, resulting in larger deficits.

Source: @RBS_Economics

2. China's electricity production is no longer growing. Much of this is due to weak industrial demand and is not necessarily a great proxy for GDP growth.

Source: Macquarie

Part of the explanation for the above is the shift in corporate activity from raw materials production to "downstream" businesses - which require less electricity.

Source: Macquarie

3. China's FX reserves remain under pressure as January saw more capital outflows.

Source: @acemaxx, @MorganStanley

4. China has become the global demand center for copper, still importing massive amounts of the commodity.

Source: Credit Suisse

5. The nation remains heavily dependent on investment (discussed previously).

Source: Macquarie

Investment level at 45% of the GDP is simply not sustainable and based on the history of other major Asian economies, the full rebalancing is yet to come.

Source: Macquarie

6. China's e-commerce mix continues to change as the customer-to-customer businesses start to dominate.

Source: JPMorgan

In some emerging economies, weaker currencies are generating inflationary pressures.

Brazil's CPI rate continues to climb.

Source: ‏Investing.com

South Africa's inflation is also waking up as the rand weakness takes its toll. This is a 17-month high and above the central bank's target.

Source: ‏Investing.com

It was a bit surprising to see Australia's wages now growing slower than those in the US as China's slowdown pressures the labor markets.

The news out of Europe is dominated by Brexit fears as the British pound drops below $1.4 for the first time since 2009. This uncertainty is part of the BoE's policy calculus at this point. It should keep the central bank on hold for some time, thus pressuring the pound.

Source: barchart

Here are the latest betting markets Brexit odds.

German industrial and trade expectations index (Ifo) declines sharply as market jitters hurt sentiment. This supports the latest ZEW report showing an industrial slowdown. What's surprising however is that the German services sector also shows signs of strain (second chart below).

Source: Ifo

The next chart shows the diverging paths of the Eurozone's housing markets. It seems that most markets are either rising or bottoming out.

Source: @NickatFP

The Eurozone's inflation expectations continue to decline, giving Draghi more ammunition to expand stimulus.

Source: @CapEconEurope

The 30yr Swiss government bond yield is probing the 20bp support again. Will the whole Swiss curve push into negative territory at some point?

Dollar-yen is now firmly below 112, as the currency markets refuse to cooperate with the BoJ.

Source: barchart

Some are making a comparison between dollar-yen and the equity markets. The idea here is that the yen acts as a safe-haven currency and should fall (the dollar should rise vs. the yen) when the equity markets are rising. That hasn't been the case (chart below). This time however some of the yen rally has to do with the BoJ's decision to shift away from accelerating the growth in the monetary base (using negative rates instead).

Source: ‏@ScottFarnham

Back in the United States we continue to see a mixed economic picture.

1. The Richmond Fed manufacturing survey seems to point to another weak ISM print.

Source: @Not_Jim_Cramer

2. The supply of existing homes for sale in the US is at pre-recession lows.

3. US commercial real estate recovery has been quite strong, far outpacing residential pricing. The availability of bank and non-bank financing in CRE is one reason.

Source: @tracyalloway

4. A recent Fed paper argues that current market-based inflation expectations are unrealistic because they imply continuing declines in oil prices - all the way to zero. But that's not what oil futures markets are telling us. Someone is wrong.

‏Source: @stlouisfed

5. Consumer inflation expectations are also declining (as we've seen with the UMichigan data). Here is the result from the Conference Board.

‏Source: ‏@markets

6. US consumer sentiment (from the Conference Board) missed consensus (92 vs. 97) as the market selloff and all the talk of recession make consumers more cautious.

‏Source: @MarkitEconomics

7. More Americans are driving - and driving longer distances - as a result of low gasoline prices and cheap auto credit.

‏Source: ‏@merrillmatter

9. The Fed's RRP program uptake has been relatively modest after the year-end window-dressing spike. This suggests that money market funds are finding other forms of short-term lending that pays much better than RRP (CP, private repo, etc.).

‏Source: @acemaxx, @FT

Now we have a couple of updates in the US credit markets.

1. Auto subprime delinquency rates are climbing. Some suggest that this is similar to the subprime mortgage problem. It's not. This paper is not widely held and banks have a limited exposure to subprime auto. It will however create a drag on auto sales over time.

‏Source: ‏@business

2. US investment-grade corporate leverage looks quite manageable because of large cash holdings. Are IG spreads too wide?

In the energy markets the spectacular day-to-day volatility continues. It started with this headline which sent crude oil sharply lower.

Source: CNBC

Wait a minute, there was never any talk of cuts - just a production freeze. So where did this expectation come from? Wishful thinking?

And then the reality of oversupply set in, as inventories rose more than expected.

Source: Investing.com

WTI futures were down over 6% on the day. US equities followed. Some 18 months ago nobody would have thought that a US crude inventory report would drive US equities markets more than other factors.

Source: barchart

Here are a few updates on other commodity markets.

1. Technicals on gold seem to be getting a great deal of attention as everyone focuses on the "wedge".

It's interesting to see gold now inversely correlated with oil and in some instances moving in the same direction as the US dollar. What a strange world we live in.

Source: barchart; h/t ‏@irecep2

2. Grains are under pressure again as wheat and oats futures hit new multi-year lows.

Source: barchart

3. Sugar prices spiked 9% on the International Sugar Organization upgrade of its global production deficit report (source: agrimoney.com).

Source: barchart

Finally, equity hedge funds continue to struggle as both long and short positions have been underperforming. Crowded trades will do that.

Source: @NickatFP, Credit Suisse

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

1. Here is the Google search frequency for the word "socialism". Some have suggested that the latest interest in socialism is not just due to Bernie Sanders and the current economic uncertainty. Instead some people supposedly associate "socialism" with social media.

Source: Google

2. Next we have some data from HSBC that shows that EU refugees gravitate mostly to places that have jobs. Not a surprise, but interesting to see the scatter plot.

The second chart below shows Growing fears over immigration.