The Daily Shot And Data - July 11, 2016

Greetings,

We begin with the United States where the June payrolls report was significantly stronger than projected: 287k jobs added vs. 175k expected. This report would indicate that the US labor markets have regained momentum. However, the revised May figure was terrible.

Below is the 3-month rolling average of the payrolls figure, suggesting that on average, job creation in the US has slowed.

Source: BLS

Here are several other trends in US labor markets.

1. The number of Americans who are not in the labor force but want a job remains elevated.

2. The average duration of unemployment also remains quite high relative to historical averages.

3. The next chart shows employment in the US oil & gas industry.

4. And here we have the American coal mining jobs numbers.

5. The next chart gets politicians very excited. It shows the percentage of Americans that "make stuff" (excluding burgers).

6. By the way, here is the number of Americans that make beds ...

h/t @RexNutting

7. What's going on with US truck drivers given the demand is clearly there? Anecdotal evidence suggests that some long-distance drivers are leaving for less grueling jobs. Perhaps.

1. In other US economic developments, the equity markets are pushing toward record levels in response to the employment report. It's worth noting that no less than seven key Federal Reserve officials will be speaking this week (George, Mester, Tarullo, Bullard, Kashkari, Harker, Kaplan). Some are likely to bring up rate hikes this year, which may reduce this "risk-on" enthusiasm.

Source: @barchart (S&P500 futures)

2. The chart below shows futures-implied probability distribution of Fed Funds target rate by the end of 2016. Will some of the speeches from the FOMC members this week change this?

Source: @CMEGroup

3. The NY Fed Nowcast (GDP tracking model) is estimating 2.1% growth for Q2 and projecting 2.3% (annualized) growth for Q3.

Source: @NYFedResearch

4. Here is the total US consumer credit balance (ex-mortgages) as a percentage of the GDP. The growth has been driven by student and auto loans. Recently credit card debt has started to rise as well. It's important to note that due to low interest rates, the average debt burden remains manageable relative to recent history. More on this later.

5. Speaking of low interest rates, we have a new record for the 30y treasury as the yield falls below 2.1%.

6. Moreover, the treasury curve continues to flatten - the 30y-2y spread falls below 1.5% for the first time since 2007. Given some of the GDP growth projections by the NY Fed Nowcast (above), is the flattening overdone?

Turning to Canada, the nation's unemployment rate dropped more than expected last month.

However, as we've often seen in the US, Canadian labor force participation is also declining.

The New Zealand dollar rally continues as the nation's bonds offer some of the highest yields in the developed world. At the same time, the central bank is unwilling to cut rates further because of concerns around frothy property markets.

Source: @barchart

Japan's service-sector index (Economy Watchers Survey) weakened again in June, with the recent yen strength expected to soften business activity.

The chart below shows dollar-yen (US dollar declining against the yen). Once again, this is a disaster for the BoJ, which is broadly expected to take some form of easing action soon.

Source: @barchart

Similarly, here is euro-yen. As discussed before, this trend makes Japanese products less competitive versus their German counterparts

Source: @barchart

1. Turning to emerging markets, cement prices in China are falling again. Is construction activity slowing?

2. China's CPI eases below 2% in June but is thought to be rising in July, as the recent floods push up pork prices. Some pig farmers have been devastated.

Note that the cement price decline (above) will push the PPI lower, while consumer inflation is quite sensitive to food prices.

Source: @Reuters, @JessReports

3. Brazil's inflation is easing due to currency effects dissipating while demand remains weak.

4. In Mexico, President Nieto's popularity continues to worsen with a 63% disapproval rate (vs 8% approval).

Source: @EMgist, El Universal

5. We've just had the largest weekly inflow into emerging markets debt funds on record.

Source: BofAML, @vikramreuters, ‏@joshdigga

1. Back in the UK, the goods trade deficit in May was the widest for that time of the year.

Source: @FT

2. UK service exports to the rest of the EU are massive, suggesting that tariffs could be quite damaging to corporate margins and the nation's economy .

Source: @Independent

3. Below is a summary of the UK Report on Jobs (June) from Markit. July will be interesting.

Source: @MarkitEconomics

4. The commercial real estate fund panic in the UK could have significant knock-on effects.

Source: Reuters

5. We continue to see tighter funding conditions in the UK's interbank markets.

Source: Goldman Sachs

6. The British pound volatility index has crashed as sterling options bets are unwound. The market sees limited risks of a further selloff.

1. Elsewhere in the EU, the chart below shows European bank shares vs. the 10y treasury yield. Impressive correlation.

Source: Goldman Sachs

2. Here is how badly the European banking sector was punished since the Brexit vote.

Source: Goldman Sachs

3. Some are suggesting that bank mergers could ease the industry's woes. Here is a good list of some possible mergers that could make sense.

Source: Bloomberg.com

4. According to Goldman Sachs, the "US$/€ funding pressures are building" as the cross currency swap basis widens. The situation, however, is nowhere near the extremes we've seen during the Eurozone debt crisis.

Source: Goldman Sachs

5. The 5-yr Bund and the Irish 10yr government bond yield hit record lows. Is this bond rally overdone?

Similarly, the Swiss 30-yr bond yield also touched new lows late last week.

1. Next, we look at commodities where gold continues to move higher. It's interesting that gold and equities are moving in the same direction - with both markets anticipating extremely easy policy from the Fed.

Source: Investing.com

2. Once again, as a note of caution, gold and silver speculative accounts' net positions are hitting new multi-year highs. Open interest is also elevated. This is becoming a crowded trade.

3. US oil rig count continues to rise. This trend suggests that some shale plays have become profitable at current prices.

4. In the next few months, US oil production is expected to stabilize (as we see in the chart above). However, for now, it's dropping like a rock.

Source: EIA

1. In the equity markets, coal companies staged a comeback this year from extremely depressed levels.

Source: Ycharts.com

2. Metals & mining shares are up over 76% year-to-date.

Source: Ycharts.com

3. HY bonds continue to outperform the S&P500.

Source: Ycharts.com

4. Market data going back to 1870s suggests that bond yields below the stock market (S&P500 proxy) dividend yield is not that unusual.

Source: @JayLeonard

Bitcoin miners' lives will become far more challenging going forward as the computational rewards have been halved (they are cut in half every four years to limit the amount of bitcoin in circulation). While some miners have been preparing, the only thing that can keep others in business is a higher price. Mining is increasingly becoming the domain of large firms with access to cheap electricity.