The Daily Shot And Data - July 22, 2016

Greetings,

1. We begin with the United States where, according to the Wall Street Journal, "US existing-home sales climb to strongest rate in nearly a decade (1.1% in June)" (see story). Mortgage rates near historic lows helped boost home purchases.

2. US house price appreciation eased somewhat, although housing inflation is still too high relative to wages.

3. Initial claims for unemployment benefits dropped to the lowest in 13 weeks. Layoffs in the US remain low.

4. The Philly Fed Manufacturing Index missed forecasts.

On a positive note, it's good to see the Philly Fed manufacturing orders stabilize - this chart shows the unfilled orders trend.

5. The Chicago Fed National Activity Index remains soft. This index is somewhat inconsistent with the NY Fed Nowcast (Q3 GDP growth projection).

6. Here is the manufacturing sector as a percentage of the US GDP.

7. Job creation in the New York City financial sector has stalled as large financial institutions remain under pressure from regulation, low rates, challenging markets, etc.

Source: @heidilearner

8. The St. Louis Fed Stress Index suggests that financial conditions continue to ease in the US.

9. Liquidity of US banks held at the Fed has declined in recent months as the Fed's RRP (reverse repo) as well as other Fed programs absorb a considerable amount of reserves.

10. The US 10-yr TIPS sold at near-zero yield at the latest auction as US real rates decline.

In fact, according to Bloomberg, "real yield on the 10-yr treasury is near the lowest since 1980 [based on core CPI] - even lower than JGBs". The "effective" monetary policy in the US is highly accommodative based on this metric.

Source: @business, ‏@acemaxx

Switching to Canada, the chart below shows Alberta's unemployment rate and the second chart is the jobless claims in Alberta. Hopefully, as the reconstruction begins (after the disastrous fires), this situation will improve.

Source: alberta.ca

Source: Statistics Canada

1. Turning to the Eurozone, Mr. Draghi dashed any (limited) hopes of increased stimulus by sticking to the current plan. The euro ended up roughly where it started.

Source: WSJ

Source: barchart.com

2. Some analysts wanted to see the ECB announce changes to bond purchase rules that deviate from the "capital key" ratio. After all, the recent purchases did deviate, with the ECB buying excess amounts of Spanish and Italian bonds. Several analysts expect this change to be formally announced in September.

Source: ‏@enlundm

3. One area where Mr. Draghi generated some excitement was the banking sector. He suggested a possibility of a public rescue fund for banks (a TARP-type vehicle). Draghi said that non-performing loans represent "an obstacle to transmission of our monetary policy." European banking shares jumped on the news.

Source: @fastFT

Source: ‏@NickatFP

4. Here is a good chart on non-performing loans in Europe. The second chart shows housing prices for select countries. Italian home prices have not yet bottomed - a situation that resembles Japan.

Source: ‏@Schuldensuehner

Source: @FT, @pdacosta

5. On a positive note, French business confidence improved in July - despite Brexit. This bodes well for the French GDP growth this quarter.

Source: @CapEconEurope

6. Dutch unemployment rate hit the lowest level since 2012.

7. The French 7-year government bond auction is shown in the first chart below and the Spanish 3-year government note auction is in the second chart. Amazing.

8. The ECB has pushed up bond prices of utility firms - here is a bond that's up 30% in a month. The company's stock has also been helped by ECB's corporate bond-buying program.

Source: ‏@tracyalloway, @AlastairJMarsh

Source: Google

This next chart shows US mutual fund flows into European equities by year.

Source: @vikramreuters

1. Switching to the UK, there seems to be no immediate impact of Brexit on mortgage lending. For now.

Source: ‏@fathomcomment

2. On the other hand, here is the UK House Price Sentiment Index. UK households still expect a small appreciation in the near future.

Source: @MarkitEconomics

3. The UK recession probability has risen.

Source: @business

4. According to the FT, UK's "government borrowing for June was the lowest since 2007".

Source: @fastFT

5. Aurelija Augulyte (Nordea Markets) points to the UK's "real crisis"- falling clothing sales.

Source: ‏@auaurelija

The Swiss National Bank's (SNB) FX holdings (mostly €) continue to rise. The Swiss want their central bank to hold gold, but instead, the bulk of the SNB's assets are euros. And next door Mr. Draghi is "printing" more ...

In Japan, Mr. Kuroda said "no need and no possibility for helicopter money."

Source: CNBC

The yen strengthened in response as some bets on helicopter money got unwound. By the way, for those who are not familiar with the concept, helicopter money is (in this case) "the central bank making direct transfers to the private sector financed with base money, without the direct involvement of fiscal authorities" (Wikipedia).

Source: barchart.com (chart shows the dollar falling or yen strengthening)

1. Turning to emerging markets, the Turkish stock market took another hit.

Source: Investing.com

2. Here is the Turkish 10yr government bond yield - back above 10%.

3. In a very different part of the world, Mozambique raised its benchmark rate to 17.25% as inflation spikes.

4. India's 10yr government bond yield continues to fall as foreign fixed income investors come in.

5. Singapore's home prices have been declining since 2013.

6. It's time to "wag the dog". Watch for more hostile actions from Kim Jong-un's government as North Korea's GDP contracts 1.1% - the worst decline in 8 years.

Source: @fastFT

7. Here are post-financial-crisis household consumption levels for select Eastern European economies.

Source: Morgan Stanley, @joshdigga

8. Brazil's inflation remains stubbornly high.

9. Indonesia unexpectedly pauses after four rate cuts this year.

10. Below is the emerging markets HY bond index credit spread. Foreign fund flows are helping.

Source: ‏@MktOutperform

Next, we look at a few developments in China.

1. The nation's business sentiment has firmed up.

Source: MNI

2. Macau inflation rate slows on weaker demand.

3. A helpful manufacturing PMI index produced by private-sector economists has been suspended - probably because Beijing wants to control economic data. Sad.

Source: @business

4. This is why many analysts suggest that China has been "exporting" deflation. Excess capacity has been pressuring prices lower.

Source: Morgan Stanley, @joshdigga

5. The "Two-Child-Policy" (see definition) won't reverse declining working-age population in China according to Morgan Stanley.

Source: Morgan Stanley, @joshdigga

Finally, here is China's 2yr government bond yield. More easing on the way?

1. In the energy markets, US natural gas in storage is still above the 5-year range.

2. Despite the above, some remain bullish natural gas because of the latest summer heat wave.

Source: ‏@business

3. NYMEX crude oil is back below $45/bbl.

Source: Investing.com

4. Saudi Arabia and Russia are battling for becoming the #1 supplier of oil to China.

Source: ‏@A_Riley17, @BloombergBrief

1. In other commodities, US corn futures continue to fall.

Source: Investing.com

2. US cattle and hogs futures remain under severe pressure.

Source: barchart.com

1. This next chart shows the multiples for large corporate LBOs: slightly less leverage in 2016 but valuations are still lofty.

Source: @lcdnews

2. The M&A activity slows in 2016 in part because of failed deals.

Source: @Dealogic

3. Here is a good chart showing NA Oil & Gas debt maturity ladder by product.

Source: @Dealogic

4. Finally, who owns US corporate shares?

Source: ‏@paul1kirby, Business Insider

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

1. The betting markets' probability of Tim Kaine winning the Democratic vice presidential nomination. The second chart shows the Google search frequency for "Tim Kaine".