The Daily Shot And Data - June 21, 2016

Greetings,

We begin with the latest Brexit-driven market developments.

1. The weekend polling brought the EU Referendum averages back to even odds.

Source: @FT

2. The betting markets are now trading Brexit probability at around 25%.

Source: @PredictWise

3. The British pound shot up by over 2% in response to reduced Brexit expectations. This was one of the largest one-day increases in a while.

Source: Investing.com

4. The British pound implied volatility (vol index shown below) fell sharply.

Source: Investing.com

5. Bitcoin declined as well, but Bitcoin enthusiasts swear that this is not Brexit related. It's the Bitfinex exchange outage or an undersubscribed bitcoin auction. It can't be related to the EU Referendum because if Brexit doesn't happen, Bitcoin is likely to fall further. And that's simply unacceptable for Bitcoin enthusiasts who are all long the cryptocurrency.

Source: bitcoincharts.com

6. The "Bremain" probability is highly correlated with the British pound. This binary event is driving all major markets these days.

Source: ‏@CapEconUK

7. Similarly, Bremain seems to be correlated with European share prices.

Source: ‏@jsblokland

8. Here is how Brexit compares with major (historical) political risks in terms of media attention.

Source: @M_McDonough

9. Equity fund outflows from the UK have worsened lately. Will this trend reverse if the UK remains part of the EU?

Source: Jefferies, ‏@joshdigga

1. In the Eurozone, the ECB reached its previous balance sheet peak (roughly).

Source: ECB

Here are the bond balances held by the ECB (for QE purposes) - almost a €1 trillion increase since early 2015.

Source: ECB

Separately, the central bank bought €1.9bn of corporate bonds in the second week of the company debt purchasing program. That's quite an improvement from the €348mn of corporate bond purchases for the previous week.

Eurozone banks' excess reserves hit a new record as a result of QE.

Source: ‏@vexmark, @business

2. The Eurozone forward (5x5yr) swap-based inflation expectations are near multi-year lows. This is not what Mr. Draghi is looking for.

Source: ‏@SLI_Global

3. The Euro-area construction output contracted in Apri - with Spain hit especially hard.

Source: @fastFT

1. Switching to China, the nation's mortgage demand has surged to record levels. Let credit flow ...

Source: ‏@vexmark

2. Numerous Chinese commodity producers are still losing money. It will take time to reduce all this overcapacity.

Source: @CEICData1

3. Here is a nice chart showing fixed asset investment driven by the fiscal stimulus rather than the private sector.

Source: @Callum_Thomas

4. China's employers do not have big hiring plans.

Source: @Callum_Thomas

1. In other emerging markets, Russian retail sales disappoint as domestic demand remains terrible.

Source: Investing.com

2. As promised, Nigeria let its currency float, which resulted in some 30% drop in the naira. The FX forward markets are pricing more weakening ahead.

Source: @SvendsenAnders

Here is the first decline in the Australian housing market since 2012.

1. Switching to Japan, dollar-yen fell below 104 despite improved global risk appetite. This is a blow to Abenomics.

Source: @barchart

2. Credit Suisse argues that a big decline in Japan's import index (in part due to a stronger yen - above) will return the country into deflation. CS suggests that more stimulus will be needed to deal with this, but it should come from the government as opposed to the BoJ. "Fiscal QE"?

Source: Credit Suisse

1. Back in the United States, the (5x5yr) forward inflation expectations fall to the lowest level since the recession. We see a similar move on the Eurozone (above). As discussed yesterday, this trend is entirely inconsistent with the recent oil rally.

2. The St. Louis Fed Financial Stress Index continues to ease.

3. Various rate models suggest that Fed Funds should be rising much faster than the FOMC has projected.

Source: UBS, @joshdigga

4. The Credit Suisse US labor market factor model indicates "a broad slowdown" (as discussed yesterday).

Source: Credit Suisse

5. Foreign investment in the US hits a record high.

Source: ‏@WSJecon

In the Equity markets, financials remain out of favor.

1. Hedge funds' net exposure to financials fell to new lows recently.

Source: @NickatFP, Morgan Stanley

2. There is some concern that a number of US banks may end up failing the Fed's stress tests. That would mean dividends cuts as the Fed forces banks to recapitalize.

Source: @business

3. In the Eurozone, banks continue to underperform.

Source: @jsblokland

A recent SEC ruling now allows a small delay to be introduced into trading hubs. This is a disaster for high-frequency trading.

Source: SEC

1. In commodities, Brent crude is back above $50/bbl on receding Brexit concerns.

Source: @barchart

2. US natural gas prices continue to gain as summer temperature forecasts rise.

Source: @barchart

Finally, US live cattle futures continue to decline. More on this later.

Source: @barchart

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

1. While we see quite a bit of debate around the declining US labor force participation after the Great Recession, according to the WSJ, "participation among men between the ages 25 to 54 topped out at 97.9% in 1954" This trend has been in play for some time now.