The Daily Shot And Data - March 11, 2016

We start with the Eurozone where Mario Draghi indeed brought out the ECB "bazooka".

Source: nextquotidiano.it

Here is what the central bank decided to do: rate cuts, expanded QE, buying corporate bonds, new TLTRO, etc.

Source: @fastFT

While this cut in the deposit facility was expected, the benchmark rate cut was new.

The markets cheered, with both bond and stock markets moving higher until Mr. Draghi's bazooka misfired. Here are the two key comments.

1. The ECB slashed inflation projections suggesting that the central bank is unable or unwilling to push inflation rates higher.

Source: ECB

2. Draghi's comment on rates was the main "misfire" when he suggested that the central bank is done cutting rates. Many were hoping that the ECB would adopt a tiered rate structure, only penalizing banks who hold reserves above a certain level (which is what the BoJ is doing). This way the central bank could take rates deeper into negative territory with a limited impact on bank profitability (negative rates on reserves become increasingly costly in QE as reserves grow). But that wasn't what the ECB decided.

Source: ECB

These comments quickly reversed the earlier enthusiasm sending stocks and bonds lower. Here is the action in the euro which had a 3.6% intraday swing. Somehow a stronger euro doesn't seem to be the ECB's desired effect - which is why many analysts called this a "misfire".

Source: barchart

During the day, the 10yr Bund yield more the doubled from the lows. The corporate bond purchases announcement suggests that the ECB will have more options as opposed to being forced into zero- or negative-yielding government paper.

It's interesting that unlike the Fed, which has a great deal of experience guiding the markets, the ECB seems less aware of markets' potential reaction to its communications. Here are the June Euribor futures.

Source: barchart

Other markets also responded to the ECB.

1. The 10y JGB futures had a sharp dip after the ECB announcement. This may have been machine-driven.

Source: investing.com

2. The 10yr JGB yield went positive.

3. Spanish 2yr yield also shot into positive territory.

4. It's worth noting that prior to Draghi's "misfiring", the G10 average 10yr yield hit record low.

Source: Citi, h/t Josh

Next are some other notable market moves.

1. Crude oil continued to rally, hitting a new high for the year.

Source: barchart

2. The PBoC guided the yuan higher (supposedly in response to the currency basket). The next two charts show the US dollar falling against the onshore and the offshore yuan.

Source: barchart

3. European banks are still underperforming but Draghi's "promise" of no more rate cuts should help bank shares. In fact a number of bank bonds rallied.

Source: Ycharts.com

There are some concerns that tighter financial conditions for euro area banks (chart below) will halt credit expansion. By ending rate cuts, the ECB may in effect be sending a signal that it will support the banking system.

h/t Josh

4. According to HSBC, buybacks were the biggest source of US equity demand during 2008-2015.

Source: @sobata416, @ReformedBroker, HSBC

4. In the US, high-dividend shares are still outperforming - in spite of higher treasury yields.

Source: Ycharts.com

5. The leveraged finance markets in the US weren't spooked by the ECB misfire, focusing instead on higher oil prices. Both leveraged loans and HY bond indices are now firmly in the black for the year as HY inflows remain strong.

Source: Ycharts.com

Source: ‏@lcdnews, @mfuller2009

6. India's share valuations seem to be stretched. Correction coming?

‏Source: @markets

Turning to economic developments, one of the US market moves that the media were not discussing is the decline in the Fed Funds futures. This means that the implied Fed Funds rate is rising.

Source: barchart

This is telling us that the Fed rate hikes in 2016 are back on the table.

Source: CME

According to one major survey, US consumer sentiment hit a record high in March. One contributor to this could be the wealth effect (second chart below).

Source: @Callum_Thomas

Source: @MatthewPhillips

JPMorgan's global economic activity index hit the lowest level in 4 years. A great deal of this is driven by emerging markets.

h/t Josh

Another global indicator which is signaling red is the M&A volume.

Source: ‏JPMorgan, h/t Josh

Direct investment inflows into emerging markets slowed sharply.

Source: Deutsche Bank, h/t Josh

Speaking of emerging markets, here is the latest chart on retail sales in Brazil.

Here are a couple of economic releases in the Eurozone.

1. Greek unemployment rate is 24% which is actually better than was expected.

2. Ireland's GDP grows at 9% year-over-year - impressive.

Norway's CPI reading was stronger than expected. This puts the central bank in a difficult spot as the nation continues to struggle in a low oil price environment.

Australian living standards are declining as the commodity boom ends. As natural resource prices stabilize, will this improve?

Source: Deutsche Bank

Finally, in 2015 the large Chinese state banks got deeper into wealth management products (WMP). At the same time other banks are ramping up this business as well. This is driving increased leverage in the bond markets and forces managers to run an asset/liability mismatch. A panic in this market (which would include investors not rolling) could be rough for China.

Source: @vexmark, h/t Jake

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

1. Bloomberg's Wine & Cheese Index (16 global wine and cheese retailers) is outperforming other markets. Life is good...

Source: ‏@DavidInglesTV

2. Almost half of eligible Latino voters are Millennials.

Source: @PewHispanic, h/t Jake

3. Here is an interesting graphic from the WSJ showing potential downsides on both sides of the political spectrum. Kasich may provide the most upside to the US economy.